Private Client Group

February 12th, 2024

Service Sector Activity And Job Growth Expands, Another Potential Regional Banking Crisis

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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:

• Service activity and job growth expands
• More Americans are turning 65 in 2024
• An update on regional banking

Service Activity and Job Growth Signal More Expansion in Q1 – As of February 7, the Atlanta Fed’s GDPNow forecasting tool shows growth of 3.4% in Q1. It’s early days, but key economic indicators for January support this assessment. The first key indicator is activity in the U.S. services sector, whose importance far outweighs activity in manufacturing. According to the Institute for Supply Management’s (ISM) services-activity index, activity rose from 50.5 in December to 53.4 in January – a substantial increase into expansionary territory and well above consensus estimates. New orders, business activity, and employment all posted readings in expansion territory, and a majority of respondents in the survey said business is steady or improving. Robust activity in the services sector tracks with gains we saw in the labor markets in January, with the Labor Department reporting jobs growth of 353,000 for the month. December’s payroll gains were also revised higher, from the previously reported 216,000 up to 333,000.1 Technology companies have garnered headlines recently as many job cuts have been announced at high-profile companies, but a closer analysis suggests that companies are recalibrating priorities towards A.I. while also cost-cutting in areas where they over-hired in the months following the pandemic. Overall, the unemployment rate held steady at 3.7% in January, and wages continue to rise faster than inflation. Wage growth notched 4.5% higher in January, while the latest headline CPI reading in December came in at 3.4%.2

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More Americans are Turning 65 in 2024 Than Ever Before – There’s a reasonably good probability that someone reading this week’s Steady Investor is turning 65 this year. That’s because more Americans than ever before are celebrating their 65th birthday in 2024, a trend that is set to continue through 2027. According to the Bipartisan Policy Center, about 4.1 million Americans will turn 65 this year, which averages to about 11,200 per day. For context, over the previous decade about 10,000 Americans turned 65 each day. One takeaway from this data is that the country should see a surge in new retirements over the next few years, but that may not necessarily be the case. According to a new report from the Pew Research Center, about 20% of Americans 65 and older had a job last year, which is nearly twice as many 65-year-old workers compared to 1990. What’s more, over 60% of 65+ year-old workers are still on the job full-time, compared to about 50% in 1987. There are several reasons for this shift, but chief among them is improved health, longevity, and a renewed sense of purpose.4

Is the Regional Banking Crisis Back for Round Two? – Jitters abounded last week in the regional banking space, with major downgrades issued for New York Community Bancorp (NYCB). Moody’s Investors Service cut NYCB’s credit rating to junk status on Tuesday, citing “financial, risk-management and governance challenges,” which followed Fitch Ratings moving the company to the lowest possible investment-grade rating. The credit rating cuts came on the heels of a disappointing Q4 2023 earnings report for the bank, which revealed a surprising loss and dividend cut. A key reason NYCB is receiving so much attention is its connection to last year’s regional banking crisis, given it was the purchaser of failed Signature Bank New York. NYCB has issued statements saying its deposits are stable, but it’s often a crisis of confidence that ultimately determines a bank’s fate. NYCB tried to quell worries by issuing a filing with securities regulators, forecasting net interest income of $2.8 billion in 2024, down from $3.1 billion in 2023. But it’s only February. While we believe the market has already priced in risk to the broader U.S. financial system, regional banks should be a continued focus for investors in 2024—especially given their exposure to commercial real estate loans.5

Tax Planning in 2024 – Don’t let tax planning be a headache this year!

Our user-friendly guide, Tax Planning in 20246, provides an overview of the many issues involved in tax planning, including ways you can reduce your tax burden. This guide is by no means exhaustive, but offers a solid resource you can use to have more effective discussions with your family and tax advisors. It covers:

• Investments—including tax loss harvesting, loss carryover, investment interest expense deductions, and many more topics.
• Healthcare and Education—from the Child Tax Credit to Health Savings Accounts to 529 plans and more.
• Retirement Planning—Traditional and Roth IRAs, catch-up contributions, Required Minimum Distributions and other essential topics.
• Charitable Giving & Estate Planning—Gifting strategies, Donor-Advised Funds, private foundations and other ways to help yourself as you help others.

If you have $500,000 or more to invest and want to learn more, click on the link below:

Disclosure

1 Wall Street Journal. February 5, 2024. https://www.wsj.com/economy/central-banking/u-s-services-activity-expands-more-than-expected-says-ism-3fe80ef7?mod=economy_feat3_central-banking_pos2

2 Wall Street Journal. February 2, 2024. https://www.wsj.com/economy/jobs/jobs-report-january-today-unemployment-economy-4f3a772e?mod=economy_feat2_jobs_pos1
3 ZIM may amend or rescind the free guide “Tax Planning in 2024: A User-Friendly Guide” for any reason and at ZIM’s discretion.
4 Wall Street Journal. February 6, 2024. https://www.wsj.com/health/america-has-never-had-so-many-65-year-olds-theyre-redefining-the-milestone-4383e769?mod=djem10point

5 Wall Street Journal. February 6, 2024. https://www.wsj.com/finance/banking/new-york-community-bancorp-stock-dropping-again-fb7b948c?mod=djemMoneyBeat_us
6 ZIM may amend or rescind the free guide “Tax Planning in 2024: A User-Friendly 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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