What to Watch in 2024: Why Fed Wants to Keep Options Open

Jeffrey Roach (00:02):

Here are a couple themes that investors should track this year. First, home builders should have a pretty good year in 2024. As you see in this first chart, construction crews made the pivot in recent months. After several quarters of growth in multifamily projects, builders are back focusing on single-family construction. Most of the recent gains were from private residential projects, as home builders made up for low inventory of total homes in the market. Money managers are rewarding the creative home builders who are offering things like lower mortgage rates for in-house financing. The bottom line is this, investors should expect home builders to grow their business this year as the residential real estate market benefits from lower rates in the upcoming months. Second, Ecommerce drove holiday sales this season. As highlighted in previous posts, Ecommerce is growing at a much faster clip than in-store sales. As retailers experienced a regime shift during the pandemic, this definitely has ramifications for those retailers who can capture these new consumer habits.

Jeffrey Roach (01:07):

For example, the CEO of Saks Fifth Avenue recently highlighted the luxury consumer still has plenty of spending capacity from healthy capital gains and a tight job market. So in total, retail sales during the holiday season recently were flat from last year after accounting for inflation. According to MasterCard data, consumers spent 3.1% more than the previous year, but that was completely offset by higher prices. Incidentally, the latest CPI registered a 3.1% inflation rate. Third, investors should look at labor market flows and the ratio of part-time workers to full-timers to get a good handle on the job market for 2024. We know that job openings fell to the lowest level since March, 2021 as the labor market is loosening and as the labor market cools, wages should level off and not likely create inflationary pressures this year from the so-called wage price spiral. Here are a few quick takes from the latest Fed Minutes, which talk about the job market as key to the outlook, many committee members confess the elevated uncertainty about the economic outlook and markets hate uncertainty, but for now, they seem to be living with that reality.

Jeffrey Roach (02:16):

Members see downside risk to that job market. By the way, both Europe and China were called out in the minutes for weighing down global economic activity. Further, rate hikes could be appropriate if the economy and inflation surprise to the upside. Well, bottom line here from the minutes, the minutes reveal the tension within the committee. Participants realize the incredible amount of uncertainty surrounding the macro landscape, and they do want to keep their options open. Although mildly hawkish in sections, the minutes imply the committee will likely hold rates steady in March, but start preparing the markets for a cut later in the year should growth falter. Well, if you want more insights on global market trends, follow us on social media and take care.