Zacks Investment Management

In this edition of Steady Investor, we explore three emerging trends that could impact your investments:

• Inflation crosses below 3%
• The rise in retail sales
• Falling mortgage rates

Annual Inflation Crosses Below 3% for the First Time Since 2021 – A highly anticipated inflation reading was released last week, and with it came a broad sense of relief on Wall Street. The Labor Department reported that the consumer-price index measure of inflation rose by 2.9% year-over-year, the first time the index has crossed below 3% since 2021. Core prices (red line below), which exclude volatile food and energy categories, also dropped to a three-year low of 3.2% annualized.¹

Source: Federal Reserve Bank of St. Louis²

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The upcoming election brings uncertainty, but making sound, objective investment decisions is more crucial than ever.

Understanding historical market trends during election years can help guide your strategies. We recommend downloading our free guide, “Stock Market Returns in an Election Year³,” to gain valuable insights, including:

• How stocks have performed in every election year since 1928
• The effect on performance when an incumbent runs for re-election
• How 2024 has compared to election year averages so far
• And more…

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Inflation resuming its downward trend following a setback in Q1 should be enough to nudge the Federal Reserve to cut rates in September. We’ve seen chatter this week suggesting that rate cuts are all but assured and that the real question is whether the Fed will cut by 25 basis points or 50. In our view, markets are repeating a pattern we’ve seen in the past few years: overextending expectations for monetary easing. The Fed has repeatedly played a cautious hand and set fairly clear expectations about their willingness to keep rates higher for longer. We don’t think they will deviate from that position by cutting rates by a half percentage point in September. For Fed watchers, there are still a few key data releases to watch between now and September: the release of PCE price index data for July, another CPI reading for August, and the August jobs report.

U.S. Consumers Prove Once Again That They’re Holding Strong – July retail sales figures were also released this week, and U.S. consumers showed once again that they are willing and able – in aggregate – to keep spending. Retail sales rose at a seasonally adjusted 1% in July compared to June, when retail sales had declined -0.2%. While this data indicates a strong rebound in spending month-over-month, it’s important to highlight that much of the gains were driven by vehicle sales, which declined sharply in June due to a cyberattack that affected dealerships. Even still, however, when vehicle sales are stripped out of the monthly figures, retail sales still rose by 0.4% from June, a solid clip.⁴

Source: Federal Reserve Bank of St. Louis⁵

Spending rose across almost all goods-related categories, with strong vehicle sales accompanied by rising purchases at grocery stores, electronics stores, and online. Retail sales reports focus more on goods than services, so a more complete picture of U.S. consumer spending will hit the tape later this month. But for now, fears have abated that a slowing jobs market and rising delinquencies were pinching consumers.

Mortgage Rates are Falling. But Will It Lift the Housing Market? The average rate on a 30-year fixed mortgage fell sharply last week, now hovering around 6.5%. That’s a dramatic improvement from last year’s peak of nearly 8%, but it does not necessarily mean the housing market is any more accessible for new buyers than it has been over the past twelve months. The supply and demand problem remains. The majority of homeowners with mortgages have rates below 5%, making many reluctant to move. On the demand side, record existing home prices have many would-be buyers waiting on the sidelines, as housing affordability remains near generational lows. Some buyers and sellers are hopeful that rate cuts this fall and perhaps beyond will help the affordability issue, but the problem there is that the market may have already priced some level of easing into mortgage rates, meaning we should not expect to see a major decline in the average 30-year fixed rate following the Fed’s September meeting. Slightly lower rates do not fix the supply/inventory issue, either: the inventory of unsold existing homes at the end of June was 1.32 million, or about 4 months’ supply at the current monthly sales rate. That’s too low.⁶

Investing During an Election Year – Investing during an election year demands putting political opinions aside and focusing on objective, data-driven decisions.

To keep your portfolio on track during these turbulent times, we recommend reviewing market performance from previous election years to guide your decision-making.

Our free guide, Stock Market Returns in an Election Year⁷, shares insights into historical market performance during election years, including:

• How stocks have performed in every election year since 1928
• The effect on performance when an incumbent runs for re-election
• How 2024 has compared to election year averages so far
• And more…

If you have $500,000 or more, fill out the form to get your free copy of this special report today—and invest smarter during this election year!

Disclosure