Mitch's Mailbox

July 10th, 2024

Will The Fed Cut Rates As Economy Slows?

Share
Subscribe

Sean H. from Mobile, AL asks: Hi Mitch, my question is about some recent economic data. Do you think June’s job numbers and the plummet in services activity finally mean the economy is slowing down enough for rate cuts?

Mitch’s Response:

Great question, Sean. I’ll share the jobs and services data first, so readers understand the basis for your question. Then I’ll discuss the possibility of rate cuts—and whether it matters.

First is job data. The U.S. Labor Department reported last week that the economy added 206,000 jobs in June, which registers as a solid showing. Importantly, however, April and May’s payroll numbers were revised lower by a combined 111,000 jobs, and more people came off the unemployment sidelines and entered the labor market—which had the effect of pushing the unemployment rate higher.1

Top Tips and Mistakes to Avoid in Volatile Markets

While it is impossible to avoid volatility entirely, there are proven strategies to minimize its worst impacts. So today I am offering our guide, ‘The Do’s and Don’ts of Stock Market Volatility’ where we provide recommendations for investors, based on 30 years of expertise. We also explore:

• 3 best practices to successfully manage periods of market volatility
• 3 most 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 Volatility2

In about a year, we’ve seen the unemployment rate go from 3.4% to 4.1%, which is a pretty significant jump. To be sure, a 4.1% unemployment rate is still historically low. But this data does offer evidence that the labor market is slowing. Average hourly earnings also ticked up at their slowest pace since 2021, rising 3.9% year-over-year in June. Wages are still rising faster than inflation, which is good for U.S. consumers, but the softer data across the board does give the Fed some breathing room when it comes to rate cuts, in my view. If the labor market were running hotter-than-expected, it’d be much harder for the Fed to justify cutting rates later in the year.

The next part of your question mentioned services activity, which saw a very surprising dip in June. In fact, services activity—which is far more crucial to U.S. economic growth than manufacturing—contracted at the fastest pace in four years. The Institute for Supply Management’s headline Services PMI fell -5 points to 48.8, with the business activity component of the index plummeting -11.6 points to 49.6. Any reading below 50 signals contraction, so these numbers raised several eyebrows indeed.

One thing to understand about PMI data, however, is that it tells us how many firms are seeing expansion or contraction activity—but it does not tell us by how much. Survey responses for the month indicated that activity was softer in June but there were no signs of demand collapsing outright, so June may have been an anomaly in what’s been an overall strong 2024 in the services sector. It’s also true that if you look at S&P Global’s services index for June instead of ISM’s, you’d see very different results. S&P Global’s services index hit 55.3 in June, which suggests overall expansion.

Taken together, I think the U.S. economy is coming more into balance—not too hot, not too cold. I think that means the Fed will be looking solely at inflation in July and August to determine if a cut happens in September. I would not expect any change to the benchmark fed funds rate in the July meeting.

As the economy finds its balance and the Fed closely monitors inflation, investors must be prepared for any scenario.

To help you prepare for any outcome, I’m offering our guide, ‘The Do’s and Don’ts of Stock Market Volatility3.’ This guide provides recommendations, based on 30 years of expertise, and explores:

• 3 best practices to successfully manage periods of market volatility
• 3 most 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!

Disclosure

1 Wall Street Journal. July 5, 2024. https://www.wsj.com/economy/jobs/jobs-report-june-unemployment-economy-68275d9e?mod=economy_trendingnow_article_pos1
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 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.

It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.
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.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
“The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.”

Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.

The Russell 1000 Value Index is a well-known, unmanaged index of the prices of 1000 large-company value common stocks selected by Russell. The Russell 1000 Value Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
READ PREVIOUS
Inflation Cools, Sea Transport Activity Up, Job Openings Trend Lower
READ NEXT
How Will The 2024 Presidential Election Impact The Markets?

Explore Zack’s Archives

View
Mitch's Mailbox
July 17th, 2024
Do Stocks Need To Deliver Blowout Earnings?
Read more
Private Client Group
July 15th, 2024
Unemployment Rate Crosses 4%, Fed Chairman Testifies, Q2 Earnings Season Starts
Read more
Mitch on the Markets
July 15th, 2024
Discovering Investments Outside The Magnificent Seven
Read more
Mitch on the Markets
July 12th, 2024
How Will The 2024 Presidential Election Impact The Markets?
Read more
Mitch's Mailbox
July 10th, 2024
Will The Fed Cut Rates As Economy Slows?
Read more
Private Client Group
July 9th, 2024
Inflation Cools, Sea Transport Activity Up, Job Openings Trend Lower
Read more

Daily financial tips directly
from the Zacks family.

Top

Search

Contact

I'm a Private Client I'm a Financial Professional