Private Client Group

February 20th, 2024

Rate Cuts May Be Pushed Back, Shoppers Retreat, Oil Market Uncertainty

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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:

• Rate cuts might be delayed
• U.S. shoppers cut back in January
• Geopolitics creates uncertainty in oil markets

CPI Surprises to the Upside – Last week, the U.S. Labor Department released a key measure of inflation for January, the consumer price index (CPI). Inflation ran hotter-than-expected. The consensus among economists was for a 2.9% year-over-year increase, but headline CPI came in at 3.1%. Equity markets experienced downside volatility on the day of the release, likely as investors recalibrated expectations for the timing and magnitude of interest rate cuts in 2024. At the beginning of the year, expectations were that the Fed would cut rates for the first time in March, but comments made by the Fed—coupled with this latest CPI data—have pushed that date back to June. Investors may assume this inflation report and the market’s reaction register as negatives for 2024, but some additional context is needed. First, January’s CPI print was still an improvement from December’s, which came in at 3.4%. The downtrend remains in place, even if inflation did not fall quite as much as economists hoped. Second, there are components of the CPI reading that obscure what is happening with prices in the U.S. economy. The main culprit is sheltering costs, notably the owner’s equivalent rent (OER) component. Shelter costs accelerated 0.6% in January from December, compared to December’s 0.4% increase. This reading seems to contradict what we’ve been seeing with rents tied to newly signed leases, which have been declining or remaining relatively flat. It’s also true that if we strip out the shelter component, the year-over-year change in the CPI would have been 1.6%, well below the Fed’s target. The upshot here is two-fold: first, we expect the shelter component and OER to decline in the coming months, anchoring CPI data as the year progresses; and, second, the Fed’s preferred inflation gauge, the PCE price index, places a smaller weight on housing costs, so the hotter-than-expected reading should not factor too much in policy decision-making.1

Questioning Your Next Investing Moves in this Current Market?

Investors often fall into the trap of trying to buy “at just the right time,” or to sell stocks during a crisis when emotions are running high.

To help you make better investing decisions when fear sets in, I recommend downloading our guide, How Market Timing Can Affect Your Retirement Plan2. This guide explains common behavioral traps to avoid and offers potential solutions on what investors should do when investing in a volatile market.

If you have $500,000+ to invest, get our free How Market Timing Can Affect Your Retirement Planning2 guide today.

After a Strong Holiday Shopping Season, Consumers Retreat in January – As expected, U.S. retail sales fell month-over-month in January, following a stronger-than-expected holiday shopping season. The Commerce Department reported that retail sales fell 0.8% in January, which marks a sharp departure from the 0.4% increase reported from November to December. Retail sales are generally expected to fall in January compared to December, given that consumers are taking a break from the big spending that accompanies the holidays. But there was also cold weather that gripped the U.S. in January, which almost certainly impacted consumers’ desire and ability to spend. Even still, there were some bright spots in the report, notably that sales at food services and drinking establishments went up 0.7%, highlighting the ongoing shift in spending from goods to services.3

Geopolitics Creates Uncertainty in Oil Markets, But May Not Impact Price – With two ongoing wars and disruptions in a critical Red Sea shipping route, one would think that oil markets should be experiencing price volatility related to supply concerns. But that hasn’t happened yet. Supply and demand dynamics explain why. On the demand side, the International Energy Agency (IEA) forecast that the world would consume an average of 103 million barrels a day in 2024, which is up just 1.2 million barrels a day from 2023 levels. The IEA is essentially predicting that modest global economic growth in 2024 will keep oil demand steady – not trigger an acceleration. On the other side of the ledger, the IEA expects that rising production from non-OPEC+ countries will boost global oil supply by 1.7 million barrels a day in 2024, led by the U.S., Brazil, Canada, and Guyana. Plentiful supply should more than outstrip increases in demand, according to the IEA, which should in theory result in low price volatility this year.4

Investing in Today’s Market – In a volatile market, many investors hope to buy low and sell high. But this strategy often leads to losses instead of gains. Don’t let fear dictate your investments!

Before making any big decisions, I recommend downloading our guide, How Market Timing Can Affect Your Retirement Plan5. This guide seeks to explain emotional and behavioral traps that investors can fall prey to and offers potential solutions to common mistakes that many self-managed investors make.

If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, get your free copy by clicking on the link below:

Disclosure

1 Wall Street Journal. February 13, 2024. https://www.wsj.com/finance/stocks/rate-cuts-might-be-delayed-thats-no-reason-to-panic-fca2c141?mod=djemMoneyBeat_us

2 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” guide for any reason and at ZIM’s discretion.

3 Wall Street Journal. February 15, 2024. https://www.wsj.com/economy/consumers/why-wall-street-expects-an-underwhelming-retail-sales-report-c8f01bbe?mod=economy_lead_story

4 Wall Street Journal. February 15, 2024. https://www.wsj.com/business/energy-oil/higher-global-oil-supply-set-to-satisfy-demand-increase-iea-says-46852c85?mod=djemMoneyBeat_us

5 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” 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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