In this week’s issue of the Steady Investor, we take a closer look at key events influencing the market, including:
- Fed cuts rates by half a percentage point
- The rise in U.S. incomes
- Consumer sentiment rises
The Long-Awaited Rate Cut Finally Arrives – The Federal Reserve wrapped up its two-day policy meeting this week, confirming that the monetary policy pivot is officially underway. Leading up to the meeting, the chatter was all about whether the rate cut would be 25 or 50 basis points, and the Fed opted for the more dovish approach, lowering the benchmark fed funds rate by 50 basis points to a range of 4.75% and 5%. 11 of the 12 Fed officials voted in favor of the cut, and projections released after the meeting signaled that the Fed could cut by 25 additional basis points at the next two meetings, scheduled for November and December. Doing so would push the fed funds rate down to a range of 4.25% to 4.5% by the end of the year. As Mitch Zacks has written recently, what we think is more important is the overall direction of rates, not necessarily the magnitude of each Fed decision. As far as stocks are concerned, we do not see monetary policy as a critically influential factor in determining the direction of markets. Stocks have risen during periods of rising rates (see 2023 as a prime example), and they’ve also performed well during periods of easy monetary policy. There are too many other factors—namely earnings—influencing stock prices for one Fed decision to make or break the markets. We remain bullish for other key reasons: expected earnings growth in the next year and lower inflation and rates in the future than we have today.1
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One Reason Consumer Spending Has Held Up: Incomes are Rising – The strong jobs market has been a saving grace for U.S. consumers grappling with higher prices. And in a first since the pandemic, household incomes have also benefitted as a result. According to Census Bureau data, inflation-adjusted median household income reached $80,610 in 2023, which was 4% higher than 2022 levels, and finally moved household income back to where it was in 2019. As seen in the chart below, median household income began a strong acceleration in 2014, which carried to 2019 and was of course dented by high unemployment in 2020. As the labor market added jobs at a steady clip over the past few years, the median income level reversed its descent and now appears poised to continue tracking higher—assuming labor market strength continues. Digging into the data a bit deeper.3
Real Median Household Income in the U.S.
Consumers Turn More Optimistic – A preliminary reading from the University of Michigan’s consumer sentiment index was released this week. Americans appear to be getting more optimistic. The sentiment index registered at 69 in September, which was up from August’s 67.9 reading. The University of Michigan also indicated that respondents were more optimistic in their outlook than they were earlier in the year, with falling inflation expectations over the next year. One area where respondents seemed a bit more concerned regarded the labor market, which is perhaps a reflection of headlines in the financial media—and comments by the Federal Reserve—citing a weakening jobs market as the impetus for rate cuts. Improved sentiment was supported by a Deloitte analysis predicting that holiday shopping sales will increase between 2.3% and 3.3% in 2024, signaling consumers’ continued willingness to spend.
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Disclosure
2 Zacks Investment Management reserves the right to amend the terms or rescind the free 4 Strategies for Spending Money in Retirement offer at any time and for any reason at its discretion.
3 Wall Street Journal. September 10, 2024. https://www.wsj.com/economy/consumers/household-income-2023-census-report-38b7d21d?mod=economy_feat4_consumers_pos1
4 Fred Economic Data. September 11, 2024. https://fred.stlouisfed.org/series/MEHOINUSA672N#
5 Financial Advisor. September 13, 2024. https://www.fa-mag.com/news/consumer-sentiment-rises-as-inflation-expectations-retreat-79516.html
6 Zacks Investment Management reserves the right to amend the terms or rescind the free 4 Strategies for Spending Money in Retirement offer at any time and for any reason at its discretion.
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