Zacks Investment Management

In this week’s edition of Steady Investor, we dive into recent market dynamics influenced by significant events, including:

• A boom in the brand-new homes market
• U.S. consumers remain resilient
• U.S. recession expectations

How “Golden Handcuffs” are Driving New Home Sales – Many existing homeowners in America are stuck. As mortgage rates have moved from historic lows (~3%) to nearly 7%, moving homes often means swapping a low mortgage rate for a high one. Home prices in some parts of the country have come down, but not by enough to make up for the new interest costs that are likely to accrue over time. Hence the term “golden handcuffs,” which describes homeowners who are essentially beholden to their low mortgage rate. According to the National Association of Realtors, only 1.08 million existing homes were for sale or under contract in May, which is the lowest level for that month going back to 1999. Dwindling supply for existing homes has left an opening for new homes, the development and purchases of which are booming. In May, newly built homes accounted for about 30% of single-family homes for sale in the U.S., which is well above the historical norm of 10% to 20%. In the same month, sales of existing homes dropped by 20% while sales of new homes rose by 20%. As seen in the chart below, new one-family homes for sale in the U.S. has risen solidly since the pandemic, especially as interest rates started moving higher.¹

Market Volatility Can Be a Good Thing – Use it to Your Advantage!
 
The ups and downs in the market can be hard to manage. Even through the feeling of discomfort, do you know that volatility may have useful, positive benefits to better navigate your investing decisions?

We encourage investors to learn how to handle volatility instead of avoiding it. To help, we are offering our exclusive guide, Using Market Volatility to Your Advantage².

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Source: Federal Reserve Bank of St. Louis³

U.S. Consumers Remain Resilient – June marked yet another month when U.S. consumers increased their retail spending. The Commerce Department reported that retail sales rose by a seasonally adjusted 0.2% in June from May, the third straight month of increases. A tight labor market should be credited for consumers’ willingness to keep spending, specifically given the fact that paychecks are also growing. According to the Labor Department, inflation-adjusted hourly wages rose 1.2% year-over-year in June, signaling that wages are now rising faster than inflation. Anytime this happens, consumers gain spending power and have tended historically to spend that extra money versus saving it. In June, consumers spent more on furniture, electronics, and online shopping, while cutting spending slightly at grocery stores, sporting goods stores, and gas stations. Spending at bars and restaurants remained steady.⁴

Fewer Economists Expect a U.S. Recession – There is an old quote from the early 1900s by George Bernard Shaw which says, “If all the economists were laid end to end, they’d never reach a conclusion.” Recent forecasting regarding the potential for a U.S. recession brings this quote to mind. At the end of last year, nearly all economists surveyed said they believed the U.S. was due to enter a recession sometime in 2023. As months wore on with the economy still growing, the number of economists expecting recession keeps shrinking. In the most recent survey of business and academic economists conducted by The Wall Street Journal, the probability of recession in the next 12 months has now fallen to 54%. Most economists said the reason for renewed optimism was tied to falling inflation expectations, which conveniently came after June’s 3.0% CPI print. Economists also largely expected the Federal Reserve to begin cutting rates sometime in 2023, in response to said recession. These forecasts have changed, too. Now a majority of economists (79%) expect rate cuts in the first half of 2024 as unemployment goes up. The bottom line, in our view: the U.S. economy has delivered better-than-expected outcomes throughout 2023, and we expect that trend to continue.⁵

The market may be experiencing a lot of volatility, but there are ways to use it to your advantage. Here at Zacks, we recommend finding ways to manage volatility instead of overlooking it.

I am offering all readers our guide Using Market Volatility to Your Advantage⁶,which provides our insights, based on decades of experience, about how a volatile market may be able to help investors refine their strategies and potentially generate solid returns over time.
 
You’ll get our ideas on:

• How market volatility can “shake up” complacent investors
• Potential bargains that may be uncovered through turbulence
• Why volatility may help prevent overheating and market “bubbles”
• What history shows us about opportunities for steady investors in turbulent markets
• Plus, more ways you may be able to benefit from a volatile market

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Disclosure