Private Client Group

May 9th, 2023

Fed Raises Rates Again, U.S. Job Market Cools, Manufacturing Contracts, Services Steady

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In this week’s Steady Investor, we take a look at some of the current events that are shifting the market, such as:

The Fed Raises Rates Another 25 Basis Points, But Signals a Pause – At the Federal Open Market Committee (FOMC) meeting this week, the Fed announced its 10th consecutive rate increase, bringing the benchmark fed funds rate to a range between 5% to 5.25%. All told, the Fed has now hiked the benchmark rate from the zero bound to 5% in just over one year, marking the fastest pace of rate increases since the Volcker Fed aggressively battled inflation in the early 1980s. The market was pricing in this 25-basis point increase, but expectations have also been set that this would be the final rate increase in 2023. Stress in the banking sector – which has been tied to the impact of rising rates on fixed-rate securities on bank balance sheets – only adds to the thesis that the Fed will pause to monitor how inflation and credit conditions in the economy evolve over the next several months. Previously, Fed Chairman Jerome Powell had been looking for clear signs of an economic slowdown and weakness in the labor markets to justify pausing the rate hike campaign. Today, the Fed has shifted to monitoring the economy for stronger-than-expected growth, hiring, and inflation as an impetus to continue raising rates. In the Fed’s policy statement, they dropped a key phrase from March’s meeting whereby they ‘anticipated’ that additional increases may be appropriate. May’s statement instead contained new language indicating the Fed would now shift to monitoring the economy to gauge the effects of previous rate increases. Chairman Powell noted: “That’s a meaningful change, that we’re no longer saying that we ‘anticipate’.” The next FOMC meeting is on June 13-14.1

How Can You Prepare for Retirement Uncertainties?

When preparing for retirement, especially in volatile times like these, taking the ‘what-ifs’ into account can keep you uncertain about your future financial decisions.  What if inflation eats into your retirement? What if you run into more expenses during retirement than you’d expected?

To help, we’re offering practical advice that is based on decades of experience and can potentially guard your retirement assets against the “what ifs” in life, including:

If you have $500,000 or more to invest, download our Retirement Uncertainties…and How to Breeze Through.2

The U.S. Labor Market Shows Signs of Cooling Off – The US Labor Department reported that job openings fell in March while layoffs rose, signaling a loosening in the labor market that has largely eluded policymakers over the past year. It may feel a bit odd to cheer the weakening of the US labor market – after all, shouldn’t we want plentiful open jobs and few-to-no layoffs, i.e., a very tight labor market? In a period of very low inflation, the answer would be yes. But we’re not in a period of low inflation, which means that tightness in the labor market invites wage pressures that translate into price pressures. Consumers are armed with more money to spend, and corporations respond to higher wages by raising the prices of goods and services in order to pad or at least maintain profit margins. Inflation follows. That’s why March’s jobs report was welcomed by investors, with job openings falling to their lowest level in two years (see chart below) and layoffs rising to a seasonally adjusted 1.8 million, up from 1.6 million in February. The leading sectors with layoffs were leisure, hospitality, and healthcare, which were strong drivers of job growth in recent months.3

Source: Federal Reserve Bank of St. Louis4

U.S. Factory Activity Contracts, But Services Remain Firm – The Institute for Supply Management reported April data for the U.S. manufacturing and services sectors, which pointed to a mixed view of economic activity. The manufacturing index was 47.1% in April, which marked the 6th consecutive month in contraction territory. April was an improvement over March’s activity but nevertheless, points to reduced demand for new orders and manufactured goods. From a macroeconomic perspective, however, manufacturing comprises a much smaller portion of the overall economy than services, which the ISM reported continues to hover in expansionary territory. Services PMI registered at 51.9% in April, marking expansion in 34 of the last 35 months. December 2022 was the single contraction reading, but the economy bounced back to start 2023. Key drivers of service activity have been robust activity in leisure and hospitality, with Americans continuing to travel and eat out. But the building boom has also kept activity firm in expansion, with a wave of apartment building, infrastructure projects, and many semiconductor manufacturing projects underway.5 

Feeling Doubtful About Your Retirement Plan? Just as we cannot predict exactly how the stories above will pan out, we also cannot predict life’s uncertainties when it comes to retirement planning. No matter how carefully you prepare for retirement, life’s unknowns can throw your plans off track. In our exclusive guide, we cover retirement uncertainties, such as:

This guide provides advice to help prepare and protect your secure and comfortable retirement. If you have $500,000 or more to invest, get our free guide, Retirement Uncertainties…and How to Breeze Through Them.6

Disclosure

1 Wall Street Journal. May 1, 2023. https://www.wsj.com/articles/federal-reserve-raises-rates-signals-potential-pause-eb264784?mod=djemRTE_h

2 ZIM may amend or rescind the “Retirement Uncertainties…and How to Breeze Through Them” guide for any reason and at ZIM’s discretion.

3 Wall Street Journal. May 2, 2023. https://www.wsj.com/articles/u-s-layoffs-jumped-in-march-as-job-openings-fell-3805c6a1?mod=djemRTE_h

4 Fred Economic Data. May 2, 2023. https://fred.stlouisfed.org/series/JTSJOL#

5 ISM. May 3, 2023. https://www.ismworld.org/

6 ZIM may amend or rescind the “Retirement Uncertainties…and How to Breeze Through Them” 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.

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Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
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