Private Client Group

March 26th, 2024

Fed Holds Rates Steady, U.S. Industrial Output Flat, Real Estate Commission Shake-Up

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In this week’s Steady Investor, we explore current market news that we believe investors should keep on their radar, such as:

• The Fed holds rates steady
• U.S. industrial output flat in February
• The new rules for buying and selling homes

The Fed Holds Rates Steady, But Reaffirms Outlook for Cuts – The March Fed meeting wrapped up this week, and as expected, officials held the benchmark fed funds rate steady at 5.25% to 5.50%. Investors were watching closely for insights on the future path of rates in 2024, most notably if the Fed intended to follow through on 75 basis points of cuts sometime this year. Fed officials delivered. A narrow majority – but a majority nevertheless – of Fed officials reaffirmed projections of three rate cuts in 2024, with longer-term projections showing the benchmark fed funds rate settling just under 4% by the end of 2025 and slightly north of 3% in 2026. Investors should not read too much into these longer-term projections, as history tells us they are rarely adhered to. But the spirit of the Fed’s nearer-term plans with rates shows that most officials believe inflation is still on the right path, despite slightly hotter than expected readings in January and February. The policy statements also offer implicit acknowledgement from the Fed that rates are currently at restrictive levels and should come down. The jobs market and wage growth continue to be strong, but both have shown deceleration in recent months – a trend that Chairman Jerome Powell indicated “could also be a reason for us to begin the process of reducing rates.” For its part, the market continues to price-in rate cuts starting this summer, with futures markets anticipating a 75% chance the Fed will cut rates at the June meeting.1

Get Our Extensive Preview of the Q1 2024 Earnings Season

February featured rising yields on 10-year U.S. Treasury bonds, falling expectations for the timing of Fed rate cuts, and a shrinking Federal Reserve balance sheet (quantitative tightening, or QT). Yet stocks went up.

In our free March 2024 Zacks Market Strategy Report2, you’ll get the latest on the economy, markets, and more including:

• Why New York Community Bank is Giving Investors Déjà Vu
• Rate Cut Delays, Rising Bond Yields, QT, and the Stock Market
• Previewing the Q1 2024 Earnings Season
• …and much more!

If you have $500,000 or more to invest and would like to learn more, request this report today!

Download Our Exclusive “March Market Strategy Guide”2

U.S. Industrial Output Flat in February – The manufacturing slump in the U.S. continues. According to Federal Reserve data, manufacturing output rose by 0.8% in February, but that followed a downwardly revised -1.1% drop in January activity. The Fed indicated that January’s downward revision was a result of harsh winter weather. February’s month-over-month increase, then, can be seen as a recovery from a previously weak month, and zooming out exposes the overall weakness. Year-over-year, factory output was down -0.7% in February. Still, there was some good news in the data. The business equipment component of manufacturing saw a sharp month-over-month increase in February, which indicates solid investment activity. Consumer demand also remains strong, which has helped factories reduce inventories and set up better supply/demand-aligned production looking ahead in 2024. Overall, manufacturing is a small slice of U.S. economic output, so weakness in the sector does not portend weakness in the broad economy.3

A Landmark Decision That Could Reshape the Real Estate Market – The National Association of Realtors (NAR) has been the target of several lawsuits claiming the industry group conspired to keep real estate agent commissions in the U.S. high. Last week, the NAR essentially conceded defeat by agreeing to a settlement that stands to change residential real estate transactions as we know it. At the core of the settlement was the NAR’s agreement to scrap a rule that required home sellers to disclose how much they would pay a home buyer’s agent, which plaintiffs and consumer groups have for years said hamstrung buyers from negotiating with agents. In effect, this rule had kept commissions for home sales at 5% to 6% of the total sales price, which is significantly higher than most of the developed world. The new rules of the road take effect this summer. For most buyers, you will need to sign an agreement detailing how much your agent will be paid for their services, which can either be covered by the home seller or be paid out of pocket by the buyer directly. This arrangement in theory will provoke buyers to negotiate fees with agents, whether that’s a flat fee, an hourly rate, or some other structure. Assuming this fee is less than the 2.5% to 3% of the home’s purchase price, buyers stand to save money. For sellers, the new rule structure may mean only paying your own agent, instead of both agents as is currently the case (the 5% to 6% commission rate is generally split between the seller’s agent and the buyer’s agent). It could also mean paying significantly less to buyer’s agents, which in both cases could mean saving thousands of dollars.4

What’s Next for the Market – The stock market has managed to perform pretty impressively despite quantitative tightening and a pushed-back timeline on rate cuts from the Fed.

In our exclusive March Zacks Market Strategy Report, you’ll get insight into the latest and important stories on the economy, markets, and more including:

• Why New York Community Bank is Giving Investors Déjà Vu
• Rate Cut Delays, Rising Bond Yields, QT, and the Stock Market
• Previewing the Q1 2024 Earnings Season
• …and much more!

If you have $500,000 or more, fill out the form to get your free report today!

Download Our Exclusive Market Strategy Report5

Disclosure

1 Wall Street Journal. March 20, 2024. https://www.wsj.com/economy/central-banking/fed-officials-still-see-three-cuts-this-year-0b039532?mod=hp_lead_pos7

2 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its discretion.

3 Windsor Star. March 15, 2024. https://windsorstar.com/pmn/business-pmn/us-industrial-output-barely-rises-after-weather-related-slump/wcm/49e70d16-1550-4ab8-bb10-16fa4edfb5af/amp/

4 Wall Street Journal. March 15, 2024. https://www.wsj.com/economy/housing/realtor-commision-settlement-new-rules-explained-bc634645?mod=economy_feat5_housing_pos2

5 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its 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.
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