Zacks Investment Management

From energy shocks to shifting Fed expectations, markets are adjusting quickly. In this issue of Steady Investor, we break down the key trends investors are watching right now, including:

• Markets weigh inflation risks
• The $110 trillion wealth shift
• Global economy holds up

More Mixed Signals from the U.S. Economy, But Growth Remains the Story – The latest batch of economic data out this week paints a fairly mixed picture for the U.S. economy. Inflation picked up sharply, driven of course by higher energy prices. Consumer spending softened as U.S. households adjust their spending. And the health of the jobs market is all about where you look. Some sectors, like healthcare, are seeing hiring booms, while others, like Technology, are experiencing material layoffs. On balance, however, layoffs fell to the lowest level in more than five decades, signaling that strength and weakness are happening in pockets.Let’s start with the latest data on inflation. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, rose 0.7% in March, pushing the annual rate to 3.5% (chart below). Core PCE, which excludes food and energy, rose 0.3% for the month and 3.2% year-over-year, its highest annual reading since November 2023. Much of the pressure came from energy, where prices surged as the Iran war pushed oil prices higher and gasoline climbed above $4 per gallon.¹

The Fed’s Preferred Inflation Gauge, the PCE Price Index

Markets Are Changing. Is Your Strategy Keeping Up?

Markets are adjusting to a new environment shaped by shifting Fed expectations, persistent inflation concerns, and changing market leadership. In periods like this, reacting emotionally to headlines can become costly.

Navigating Market Volatility³ is a free guide designed to help you stay disciplined when markets feel uncertain. It outlines four practical principles to help you cut through the noise, manage risk, and stay confident in your long-term plan. Download it to learn how to:

• Sharp market declines and corrections are a normal part of investing
• The best market days come unexpectedly (often within days or weeks of the worst days)
• Trying to pick market tops and bottoms is nearly impossible
• Trust your strategy and discipline, not the headlines
• Plus, more insights and assistance to help you keep your investment strategy on course

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

Download Your Free Copy Today: Navigating Market Volatility: 4 Principles for Staying the Course³

With inflation still running above target and energy prices creating a fresh source of pressure, policymakers appear to have little urgency to restart rate cuts. The labor market also somewhat complicates the rate picture, as initial jobless claims fell to 189,000 for the week ended April 25, down 26,000 from the prior week and well below expectations. That was the lowest reading since September 1969. The labor market has been in a low-hire, low-fire pattern for much of the past year, but the latest claims data suggest employers are still reluctant to cut workers. Overall, with Q1 GDP coming in at 2% and the services sector showing strong expansion, the data still point to an economy absorbing pressures rather than buckling under them.

Delayed: A $110 Trillion “Wealth Transfer” – For years, the financial media have talked about the “great wealth transfer” as if it were a single, looming event. As told, baby boomers would be passing down trillions of dollars to their children and grandchildren in a flood of new generational wealth. The reality is likely to be slower, more uneven, and more complex.

Older Americans are sitting on an estimated $110 trillion of wealth, much of it held by baby boomers and Gen X. Over the past few decades, that wealth has grown sharply, helped by rising stock prices, business ownership, and decades of home price appreciation. One analysis using Federal Reserve data found that bequeathable wealth, net worth excluding pensions and annuities that typically cannot be passed down, rose from 256% of GDP in 1997 to 424% in 2021. But that does not mean younger generations should expect a sudden windfall. Much of the wealth is still held by households that could have decades of life ahead of them. In 2021, the age group with the most aggregate wealth was 55 to 64 years old, according to research from Brookings. Wealthier Americans also tend to live longer, with the top 1% of earners living, on average, into their late 80s. That alone stretches out the timeline. In Federal Reserve surveys conducted between 1998 and 2010, Americans in their late 50s were the most likely to report receiving an inheritance. In surveys conducted between 2013 and 2022, the peak inheritance age had shifted to the mid-60s. The wealth transfer is happening, but not necessarily at the age or speed many younger households might expect.⁴

Despite Many Crosscurrents of Pressure, the Global Economy Holds Up – The global economy is facing its most serious energy shock in decades, but so far, growth outside the U.S. has held up better than many feared.The closure of the Strait of Hormuz has removed roughly 13 million barrels of oil per day from global energy supplies and pushed Brent crude prices more than 50% higher. Some countries are already feeling the strain, with blackouts, fuel rationing, and shorter workweeks appearing in parts of Asia and emerging markets. Even so, major economies have not yet seen the type of swift downturns that accompanied energy shocks in the 1970s or early 1990s.One reason is that the world has become more energy efficient. Since 2000, the amount of energy needed to generate a dollar of inflation-adjusted GDP has fallen by about one-third in the U.S. and Europe and roughly 40% in China. Energy reserves have also helped cushion the blow, with Japan, Korea, Europe, and China all entering the crisis with sizable stockpiles.Interestingly enough, the AI boom is providing another offset. Demand for chips, electronics, and machinery has supported Asian exporters, with March exports up 12% year-over-year in Japan, nearly 50% in South Korea, and 68% in Taiwan. Hong Kong also surprised to the upside, with first-quarter GDP rising 5.9% from a year earlier, helped by exports, financial market strength, and improving sentiment.The risks are still meaningful, especially if the strait remains closed into next year. But for now, the global economy is absorbing the shock far better than expected, in our view.⁵

How Should Investors Respond to Today’s Market Uncertainty? – Even with markets facing new inflation concerns and global uncertainty, the economy has continued to show more resilience than many expected.

Our exclusive guide, Navigating Market Volatility⁶ is a free guide that offers a clear framework for staying disciplined and managing risk during uncertain markets. It covers topics such as:

• Sharp market declines and corrections are a normal part of investing
• The best market days come unexpectedly (often within days or weeks of the worst days)
• Trying to pick market tops and bottoms is nearly impossible
• Trust your strategy and discipline, not the headlines
• Plus, more insights and assistance to help you keep your investment strategy on course

If you have $500,000 or more to invest, access your free volatility guide today.

Disclosure