Private Client Group

February 26th, 2024

Home Sales Up In January, Eurozone Recovering, Fed Rate Cut Update

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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:

• Home sales rebounded in January
• Eurozone draws closer to recovery
• An update on the Fed and rate cuts

Is the U.S. Housing Market in the Early Days of a Rebound? 2023 was a slow year for the U.S. housing market. 7+% mortgage rates put a chill on would-be buyers, and also on sellers who did not want to trade in a low mortgage rate for a high one. Existing home sales – which make up a majority of home sales in the U.S. – fell to their lowest level since 1995. 2024 looks a bit different so far, with activity picking up in January. According to the National Association of Realtors, home sales rose 3.1% month-over-month in January to a seasonally adjusted annual rate of 4 million, the highest level in five months. Existing home sales were still down year-over-year, but the uptick from December could mark a turnaround for the housing market, especially considering that 30-year fixed mortgage rates dropped below 7% and are expected to fall further as the Federal Reserve eases later in the year. The inventory of homes in the U.S. is still low. But that may also be driving rising confidence among U.S. homebuilders. In February, a survey of homebuilders showed three straight months of improving sentiment, with higher current sales, expected sales, and prospective buyer foot traffic. Improvement in the U.S. housing market is certainly welcome news, but it’s not very actionable for investors. Residential real estate is a small component of GDP, and improving or declining activity does not correlate much with the stock market.1

Should Investors Be Afraid of Market Heights? Get Our Insights!

Interest rates are still high. Inflation is still above target. Many Americans still don’t feel great about the economy.

But fear is no reason to sell. Instead, we recommend gaining more knowledge into what’s happening in today’s market to better guide your investing decisions.

We are offering our exclusive February 2024 Zacks Market Strategy Report, where we look at the latest updates from Q4 2023 earnings and what they suggest for 2024. You’ll also get insights on:

• Has the market gone too high, too fast?
• A look at the inflation question in the months ahead
• Q4 2023 earnings updates and a look ahead to 2024 earnings
• And much more!

If you have $500,000 or more to invest and want to learn more, download your free report today!

Download Our Exclusive “February Market Strategy Guide”2

Eurozone Economy Turns Up, But Germany Still a Drag – The European economy may finally be turning a corner. A composite index of manufacturing and services activity for Europe, released by HCOB, showed activity rising from 47.9 in January to 48.9 in February, the strongest reading in eight months. To be fair, any reading below 50 still marks contraction, but investors may take respite seeing that activity is at least moving in the right direction. What’s more, the index for services recovered to 50.0, which may be a signal that tourism on the continent is recovering with consumers spending more. Business confidence for 2024 also improved across the eurozone. The weak patch continues to be in manufacturing activity, driven largely by ongoing weakness in Germany. The index reading was 46.1, and industrial confidence in the country also fell. Weak data tracks with Germany’s national economic forecast for -0.2% GDP growth in 2024, a far cry from the previously forecast 1.3% growth. Germany is the powerhouse economy of Europe, so this data may seem concerning to investors. But not to markets – German equity markets are hovering around all-time highs, likely as they anticipate a rebound later this year or early next year.3

The Fed Seems Concerned About Cutting Rates Too Soon – Last week, investors got a look at Fed minutes from the January 30-31 meeting, and one thing was clear – most Fed officials are more worried about cutting rates too soon, versus too late. According to the minutes, “Most participants noted the risks of moving too quickly to ease the stance of policy,” while only two officials pointed to the risks “associated with maintaining an overly restrictive stance for too long.” This cautious sentiment among Fed officials aligns with our thinking that the market seems to be a bit too optimistic about the timing and magnitude of rate cuts in 2024. At the outset of the year, the market was pricing a more than 50% likelihood for rate cuts starting at the March meeting, but that timeline has now been pushed back to June. Fed officials were careful not to come across as hawkish, however, in reiterating their view “that there had been significant progress recently on inflation returning to the committee’s longer-run goal,” and that “the policy rate was likely at its peak for this tightening cycle,” according to the minutes. With inflation running at roughly 3% year-over-year, and the Fed funds rate still at a range between 5.25% and 5.50%, rate cuts are arguably imminent. The market’s just been wrong about timing.4

What’s Next for the Market – Investor concerns linger due to high-interest rates and inflation. But, what’s next for the market?

Our February Zacks Market Strategy Report, covers topics that all investors should be aware of to better guide their investing decisions, such as:

• Has the market gone too high, too fast?
• A look at the inflation question in the months ahead
• Q4 2023 earnings updates and a look ahead to 2024 earnings
• And much more!

If you have $500,000 or more to invest and want to learn more, download your free report today!

Download Our Exclusive Market Strategy Report5

Disclosure

1 Wall Street Journal. February 22, 2024. https://www.wsj.com/economy/housing/home-sales-mortgage-data-january-2024-71eb3858?mod=economy_lead_pos1

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 Wall Street Journal. February 22, 2024. https://www.wsj.com/world/eurozone-draws-closer-to-economic-recovery-pmis-show-c632c92e?mod=economy_lead_pos3

4 Wall Street Journal. February 21, 2024. https://www.wsj.com/economy/central-banking/federal-reserve-minutes-jan-2024-rate-cuts-25f72187?mod=economy_feat3_central-banking_pos1

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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