Solid Rally, But From Low Levels (Technically Speaking For 4/28)

Apr. 28, 2022 5:21 PM ETSPY, DIA, QQQ, IWM5 Comments
Hale Stewart profile picture
Hale Stewart


  • Yes, 1Q22 GDP contracted. But the data isn't nearly as bad as the headline looks.
  • Companies in the Kansas City Fed's district are having supply chain problems due to China's lockdowns.
  • The markets rallied from low levels.

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1Q GDP contracted by 1.4%. But this is really about the math behind the GDP calculation:

The report is more an illustration of how GDP calculations tend to be volatile from quarter to quarter, not necessarily indicating weakness in the economy or a sign of recession. The contraction was due to a jump in imports and a drop in exports, coupled with a slower buildup of businesses' stockpiles. On a year-over-year basis, the economy grew 3.6%.

Remember that imports are subtracted from total GDP (because we send dollars abroad) while exports are added (because money comes into the country).

Here's the table from the report:

Q/Q change in GDP components

Q/Q change in GDP components (Bureau of Economic Analysis)

Consumer spending and investment both increased. Imports jumped sharply while exports contracted. This is all about the math. In fact, personal and investment spending is such that the economy is in pretty good shape.

Why are we seeing an uptick in unionization? College-educated workers are having an influence.

Over the past decade and a half, many young, college-educated workers have faced a disturbing reality: that it was harder for them to reach the middle class than for previous generations. The change has had profound effects - driving shifts in the country's politics and mobilizing employees to demand fairer treatment at work. It may also be giving the labor movement its biggest lift in decades.


Support for labor unions among college graduates has increased from 55 percent in the late 1990s to around 70 percent in the last few years, and is even higher among younger college graduates, according to data provided by Gallup. "I think a union was really kind of my only option to make this a viable choice for myself and other people," said Mr. Mulholland, 32, who helped lead the campaign to unionize his Manhattan REI store in March. Mr. Shiflett and Ms. Alanna have also been active in the campaigns to unionize their workplaces.

Things really are different for the younger generations.

Lockdowns in China are having a material impact on supply lines:

As a result of the COVID-induced lockdown in China, 70% of firms reported higher supply chain disruptions and 57% reported higher input prices. A significant share of firms reported no change in demand, capital spending, hiring, and inventories (Chart 3). However, 17% of firms reported facing lower inventories due to the COVID-induced lockdown in China.

From the same reports anecdotal comments:

"It is extremely frustrating to have a record backlog and be unable to execute due to supply chain issues."

"Product for our production process is becoming increasingly difficult to obtain. Being quoted ten to eleven weeks delivery with that being a guess at best."

Let's take a look at the charts:

1-day SPY, QQQ, DIA, and IWM

1-day SPY, QQQ, DIA, and IWM (StockCharts)

Today, the rally that started in the afternoon was the big story. And it should have been. The markets have been in the doldrums lately, so a strong rally is going to garner attention.

3-month SPY, QQQ, DIA, and IWM

3-month SPY, QQQ, DIA, and IWM (StockCharts)

But remember that prices are bouncing from key levels. We really need a few more days with this kind of rally before we get excited about this move.

Ultimately, the markets are still in a very soft position. And that's occurring against a tough macroeconomic backdrop.

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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