Rocket Fuel Newsletter – 09/23/2024
Meet your new guac expert: a robot! Chipotle’s “autocado” is shaking up the kitchen with its ability to peel, core and slice avocados in just 26 seconds. With automation in the mix, your burrito bowl might just be the future of fast food.
In this edition: The Fed makes its first rate cut since 2020, we explore the decline of music festivals, and we dive deep into rate-cutting cycles’ impact on housing, labor and stock markets.
Fuel Up! 🚀
Fed rate decision
In a decisive move, the Fed announced a 0.5% rate cut Wednesday. This larger cut offers immediate relief for borrowers and indicates the central bank’s commitment to jump-starting economic activity following a weak jobs report earlier this month.
Watch Varun Krishna, our Rocket Companies CEO, as he shares his thoughts on how the Fed's decision could impact mortgage rates on 'First on CNBC.'
2024: The year music festivals fizzled out
2024 has seen a wave of music festival cancellations around the globe – from the U.S. to Europe and beyond. Rising production costs and ticket prices as well as shifting generational trends are making it more difficult for festivals to survive. It’s also hypothesized that a more socially isolated youth and the popularity of steaming services aren’t helping.
Will music festivals make a comeback, or has the party ended for good?
TikTok heads to court
Last Monday, TikTok and the U.S. government began their battle in court over a law that could lead to the platform’s ban by early next year. While TikTok is arguing that the law is unconstitutional and harms free speech, the government says the app poses a national security risk due to its ties to China.
Will TikTok users have to say goodbye soon?
Rocket Release with Mike Fawaz
Hear tips from Fawaz on how to convert hesitant buyers and build stronger connections with real estate agents using our Rocket-funded 2-1 temporary buydown, Welcome Home RateBreak.1
Watch below to learn more.
What happens once a rate cutting cycle begins?
For the first time in 4 years, the Fed has cut interest rates and is moving into a rate-cutting cycle.
The Federal Funds Rate has been left at 5.25% – 5.5% for over a year after the most aggressive hiking cycle in history that took place from March 2022 to July 2023 as the Fed targeted bringing down inflation. The restrictive rate has helped return inflation to a sustainable range, and the focus now shifts toward the second part of the Fed's dual mandate – ensuring the labor market stays healthy.
There have been 13 rate cutting cycles since 1950 and seven in the past 50 years. These cutting cycles have averaged 26 months and rates decreased by an average of 6.35 percentage points.
While each cutting cycle is unique, let’s examine what tends to happen after the first rate cut.
The housing market
The onset of a rate cutting cycle typically coincides with lower mortgage rates. Reduced borrowing costs make it more affordable for prospective buyers to purchase a home.
Housing demand generally picks up during these times as more people enter the market. That is expected to be the case this time around, especially since a “lock-out effect” has deterred people from leaving their low-interest-rate mortgages until now.
As interest rates move to a more neutral position, market activity should pick up. We have already seen indications of this happening as pent-up demand emerges from the sidelines.
The labor market
The Fed cuts rates in an attempt to stimulate the economy and help support the labor market. However, the effects of rate cuts are lagging, often causing further deterioration in the labor market before things start to get better.
As the labor market shows signs of softening, the expectation is for things to continue to deteriorate in the short term before improving. The good news is that the labor market is still relatively strong all things considered, and the Fed is not cutting out of necessity.
The stock market
In the year after the first rate cut, 85% of rate cutting cycles saw a positive S&P 500 return and six cycles saw a positive return of 20% or more. However, two of the past three rate cutting cycles have seen drawdowns for the S&P 500 of more than 10%.
Each rate cutting cycle is unique, and it is impossible to know what will happen this time around. What we do know is that the Fed wants to move interest rates from being restrictive to a neutral position.
Markets are expecting interest rates to land around 2.25% – 2.50% and 3.25% – 3.50% this time next year, but much could change between now and then.
On a tough puzzle, three solvers managed to finish in a minute or less, led by our winner at 41 seconds. The difficulty stays high this week – can you crack it?.
This week’s puzzle gets 4 Rockets out of 5.
1 The 2-1 temporary buydown offer is funded by Rocket Mortgage. Clients will receive an effective rate reduction of 2% below the note rate in the first year and 1% below the note rate in the second year. Offer only valid on HomeReady® or Home Possible® loans. Maximum loan amount of $350,000. Buydown funds may not be redeemed for cash or credit and are nontransferable. This offer cannot be retroactively applied to any loans in process or closed loans. Offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend.