Private Client Group

September 12th, 2023

Consumer Spending Remains Strong, Health Insurance Costs Rise, Cheap Flights Are Back

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In today’s Steady Investor, we dive into key factors that we believe could impact the future of the market such as:

• Economic strength in services and consumption
• Rising rent hitting American suburbs
• Health insurance premiums are on the rise
• Cheap flights are back

The Most Important Parts of the Economy Remain Strong – The U.S. economy is powered by services and consumption. Both segments continue to show strength. In August, the Institute for Supply Management (ISM) reported that U.S. service-sector activity increased by its fastest pace in six months, driven in large part by ongoing consumer spending. The ISM’s purchasing managers index for services rose to 54.5% in August, up from 52.7% in July. Any reading above 50 marks expansion. While the purchasing managers index for manufacturing remains in contraction territory, its contribution to GDP is far smaller than services. The resilience of U.S. consumers continues to surprise the upside, which is feeding into services strength. Inflation-adjusted incomes are rising, many households have locked in low borrowing costs, and inflation has been declining for many goods and services. This has put consumers in a position to continue spending, which is precisely what they’ve done. As seen on the chart below that maps spending (personal consumption expenditures), households have held steady for well over a year now.1

Timing Today’s Stock Market

The market’s ups and downs can be very unsettling for some investors. It can also be very tempting to try to time the market.

Instead of letting fear drive you to buy “at just the right time,” or sell stocks during a crisis when emotions are running high, try downloading our guide, “How Market Timing Can Affect Your Retirement Plan2”. This guide explains these behavioral traps and offers potential solutions.

If you have $500,000+ to invest, get our free How Market Timing Can Affect Your Retirement Planning2 guide today.

Source: Federal Reserve Bank of St. Louis3

This ongoing level of strength in services and spending is what has kept U.S. GDP growing at a faster-than-expected pace. According to the Atlanta Fed’s GDPNOW tracker, the economy is projected to grow 5.6% in the third quarter4 – a far cry from the recession forecasts that dominated the first half of the year.

Where Rents are Rising Fastest in America – The inventory of existing homes in the U.S. remains very tight, and with 30-year fixed mortgages now hovering around 7%, the number of existing home sales has fallen significantly. In July, existing home sales hit their lowest level in 13 years. People are still moving, however. The shift away from city centers and towards suburban neighborhoods (a trend that accelerated with remote/hybrid work) has increased demand in suburban markets—for rental homes. That’s having a measurable impact on price. Rents in suburbs have jumped by 26% from March 2020 to July 2023, which is an 8% larger increase than rents have risen in urban centers.5

Health Insurance Premiums May Be on the Rise – A recent survey by benefits consulting firms Mercer and Willis Towers Watson delivered discouraging news to businesses: health insurance premiums are likely to jump next year. Costs for employer coverage are expected to surge approximately 6.5% next year, due to rising labor costs in hospitals and surging demand for new and pricey diabetes and obesity drugs. A 6.5% increase could mean a significant bump in the already expensive employer plans, which average more than $14,600 per employee. Given the existence of labor shortages across the U.S., many businesses are likely to absorb that increased cost versus passing it along to employees, so as not to risk losing key talent. Those higher healthcare costs could bite into bottom lines.6

Looking for Cost Savings This Fall? Check out Airfares – Airlines are running end of summer discounts, in a sign that travel may finally be normalizing after years of surging demand. As seen on the chart below, airfares (blue line) have fallen at a much faster rate in recent months than overall inflation (CPI, red line), as airlines make efforts to fill up planes as the busy travel season winds down. This doesn’t mean that a ticket home for Thanksgiving or Christmas will enjoy a steep discount, but travelers might consider looking at other non-holiday dates for deals.7

Source: Federal Reserve Bank of St. Louis8

Advice on Timing the Market – Current events (like the ones listed above) have the potential to shift the market every day. These unknowns can cause many investors to fall into the trap of trying to buy “at just the right time,” or sell stocks during a crisis out of fear.

To guide you through investing during unpredictable times, we recommend downloading our free guide, “How Market Timing Can Affect Your Retirement Plan.9 This guide seeks to explain emotional and behavioral traps that investors can fall prey to. It also offers potential solutions to common mistakes that many self-managed investors make.

If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, get your free copy by clicking on the link below:

Disclosure

1 ISM. 2023. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/

2 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” guide for any reason and at ZIM’s discretion.

3 Fred Economic Data. August 31, 2023. https://fred.stlouisfed.org/series/PCE#

4 Federal Reserve Bank of Atlanta. 2023. https://www.atlantafed.org/cqer/research/gdpnow

5 Wall Street Journal. September 3, 2023. https://www.wsj.com/economy/housing/rising-rents-are-hitting-american-suburbs-hardest-6c001518?mod=djemRTE_h

6 Wall Street Journal. September 7, 2023. https://www.wsj.com/health/healthcare/health-insurance-cost-increase-5b35ead7?mod=djemRTE_h

7 Wall Street Journal. September 5, 2023. https://www.wsj.com/lifestyle/travel/cheap-flights-airfare-fall-deals-4c201532?mod=djemRTE_h

8 Fred Economic Data. August 10, 2023. https://fred.stlouisfed.org/series/CUSR0000SETG01#

9 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” guide for any reason and at ZIM’s discretion.


DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

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The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
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