Private Client Group

February 5th, 2024

Fed Signals No Rate Cut In March, Consumer Confidence Rises, Possible Tax Cuts Ahead

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

• An update on the Fed and rate cuts
• Rising consumer confidence
• The status of tax cuts

The Fed Disappoints Markets – The Federal Reserve ended its first policy meeting of 2024 last week, and investors weren’t too happy with the outcome. As expected, the Federal Reserve held rates steady in a range of 5.25% to 5.5%. This decision came as no surprise. What markets did not appreciate, however, was the central bank’s suggestion that rate cuts were not imminent in the spring, which goes squarely against the market’s 50% odds that the first-rate cut would come at the March 19-20 meeting. To date, the Federal Reserve has largely tried to remain cautious in setting expectations for rate cuts. But what was unique and arguably disconcerting for markets last week was Chairman Jerome Powell explicitly stating that a March cut did not seem likely. The market wants to hear that the door is still open to a cut, especially considering the expectation for five rate cuts to 2024 versus the Fed’s projection of three. Investors looking ahead in 2024 might reasonably consider this tension to continue playing out, with the market wanting one thing and the Fed delivering another. Chairman Powell stated that the Fed is not necessarily looking for further improvement in the data, but rather that inflation does not show any signs of picking back up. In our view, there is not a very strong rationale for keeping the Fed funds rate above 5% when inflation is below 3%. This level of restrictive policy is appropriate when the Fed is trying to push inflation down, but today the central bank just needs to keep it from going up.1

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Consumer Confidence is Picking Up – American households held a dismal view of the U.S. economy last year, even as 2.7 million new jobs were created and as wages rose faster than inflation. Higher prices arguably outweigh everything when it comes to sentiment, and mortgage rates above 7% – accompanied by a tight housing market – also had many folks feeling dour about their economic prospects. It is early days, but things may be looking up in 2024. The Conference Board’s consumer confidence index rose by 6.8% in January from the month before, with feelings about the business environment and jobs market hitting their highest level since the pandemic. Consumers no longer believe that jobs are “hard to get,” and inflation expectations fell to their lowest level since March 2020. American households are also looking ahead and seeing the possibility, or even likelihood, of lower interest rates, which should reduce borrowing costs and bring home purchases back within reach. Gains in the Conference Board’s measure of confidence was seen across all age groups, particularly the older cohort. Making plans for big purchases dipped a bit in January, but consumers also said they held favorable views on the outlook for their incomes and personal finances over the next six months.3

Could More Tax Cuts Be on the Way? – A new proposal delivering tax cuts for businesses and families has cleared a key hurdle in the House of Representatives, making its way out of committee with a 40-3 vote in favor. Some readers may be wondering: Tax cuts? Aren’t deficits and debt a growing concern in the U.S. today? The answer is that this set of tax cuts is being funded by the proposed end of another tax credit, known as the employee retention tax credit, which was a pandemic-era tax credit that has been costing the federal government tens of billions of dollars – often becomes of claims made in bad faith or that were outright fraudulent. Ending that program would free up approximately $79 billion, enough to fund the newly proposed tax cuts through 2025. The new tax cuts would be ones many Americans are familiar with. On the business side, the bill would reverse a provision in the 2017 Tax Cuts and Jobs Act which said that businesses had to spread deductions for domestic research costs over five years, versus having the ability to take them immediately. The bill would also bring back full immediate deductions for equipment purchases, and ease a limit on deductions for interest costs. For American families, the bill focuses on the child tax credit, which is currently for $2,000 a child but is not all refundable. In the bill, the amount of the credit available as a refund would be raised to $1,800 for 2023 tax returns, $1,900 in 2024, and $2,000 for 2025.4

Navigating Market Volatility – Steering through the stock market as a long-term investor inevitably exposes you to volatility; however, managing it is not only achievable but essential for success.

To help, we recommend our free guide, ‘The Do’s and Don’ts of Stock Market Volatility’, which offers strategies that empower long-term investors to effectively navigate and capitalize on market fluctuations. This guide also explores:

• Three best practices to successfully manage periods of market volatility
• Three common mistakes investors make, and why they are so damaging to your long-term investing goals
• Historical data that supports our conclusions and underscores the recommendations we propose

If you have $500,000 or more to invest, get our free guide today!

Download Your Copy Today: The Do’s and Don’ts of Stock Market Volatility5

Disclosure

1 Wall Street Journal. January 31, 2024. https://www.wsj.com/economy/central-banking/fed-leaves-rates-steady-and-opens-door-wider-to-cuts-d10a107d?mod=djemRTE_h

2 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility offer at any time and for any reason at its discretion.

3 Conference Board. 2024. https://www.conference-board.org/topics/consumer-confidence

4 Wall Street Journal. January 30, 2024. https://www.wsj.com/politics/policy/tax-cut-loving-republicans-grumble-at-78-billion-in-bipartisan-tax-cuts-95f45132?mod=djemRTE_h

5 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility 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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