A growing number of investors believe the U.S. economy is headed for a “no-landing” scenario in which the economy continues to grow, even though inflation falls short of the Fed’s 2% goal.
A Bank of America Global Fund Manager Survey released Tuesday found that 36% of respondents believe the most likely outcome for the global economy over the next 12 months is a “no-show.” I answered. This is a notable move, higher than the 23% that saw the result a month ago, and the highest level since June 2023, the earliest date on BofA’s chart.
Meanwhile, 54% of respondents believe a soft landing (economic growth slows but not a recession, and inflation returns to its historical average) is the most likely outcome.
This signals a shift in the conversation on Wall Street, with only 7% of respondents believing the base case is a hard landing of the economy into recession due to restrictive policies. Much of the debate on Wall Street last year was about whether the economy was in for a hard or soft landing.
The debate has now turned to whether recent better-than-expected economic data could impede further developments in inflation.
“A recession won’t hurt the U.S. economy unless there’s a trigger, but we don’t know what will stop consumer spending,” Tom Simmons, U.S. economist at Jefferies, said in an April 12 note. I wrote. It’s unclear how inflation will slow down in the future, so it’s difficult to see how the Fed will be able to cut interest rates. ”
On Monday, retail sales data for March confirmed this point. Retail sales in the control group, which excludes volatile categories such as automobiles, building materials and gas stations, rose 1.1% during the month. This measure, which is directly reflected in GDP, combined with the upward revision from February’s announcement, led economists to raise their economic growth forecasts for the first quarter.
Goldman Sachs now expects the U.S. economy to grow 3.1% sequentially, up from its previous forecast of 2.5%. Meanwhile, according to the Atlanta Fed’s GDP Now Tool, the growth rate for the first quarter was 2.8%, revised upward from the prior estimate of 2.4%.
These upward revisions come as inflation expectations are also rising after consumer prices were higher than expected on several occasions throughout the first three months of this year. As a result, a growing number of economists are suggesting that the Fed may not cut rates this year, resulting in a “landfall” in 2024.
“The lack of moderation in consumer spending and inflation will undermine Fed officials’ confidence that inflation will sustainably return to 2%,” Kathy Bojancic, chief economist at Nationwide, said in a note Monday. . “[Recent statistics]suggest that the rate cut is likely to be postponed until September at the earliest, and the rate cut could be postponed to next year,” he said.
story continues
More investors believe a “no-landing” scenario is likely to become a reality for the U.S. economy. (AP Photo/Wilfredo Lee, File) (ASSOCIATED PRESS)
Mike Wilson, Morgan Stanley’s chief investment officer, said the market has been pricing in signs of a “no-landing” scenario in recent weeks.
Wilson cited the recent spike in the 10-year Treasury yield (^TNX) and declines in interest rate-sensitive sectors such as the small-cap Russell 2000 index (^RUT) as examples. Wilson noted that such a scenario is not bad for all sectors of the stock market and could lead to a healthier backdrop for earnings growth.
“With interest rates currently increasing risks to valuations, we favor large-cap areas of the market that are undervalued for better-than-expected growth positions, such as large-cap energy,” Wilson wrote.
Morgan Stanley’s earnings forecast metrics are trending upward as signs of better-than-expected growth data continue across economic indicators. (Morgan Stanley Institute)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
Click here for the latest economic news and indicators to help you make investment decisions.
Read the latest financial and business news from Yahoo Finance
