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I don’t have a pilot’s license yet, but I plan to enroll in flight school soon to figure out if the economy is headed for a hard, soft, or no landing.Federal Reserve Approaching Tail End Investors are bracing for a hard landing in an aggressive rate hike cycle. But with unemployment near record lows (3.4%) and multitrillion-dollar government stimulus packages are still working across the system, while others see a soft landing for the economy. These days, economic data is flying at an accelerating pace. This could mean that the economy is stuck in the air and unable to land.
For those waiting for an impending recession, there appears to be a delay.In other words, bearish pessimists may be waiting at the gate longer than expected.as you can see in the chart belowAtlanta Federal Reserve economists are now forecasting economic growth (GDP – Gross Domestic Product) to grow at a respectable +2.8% rate in the first quarter.
Source: Federal Reserve Bank of Atlanta
How have investors interpreted this confusing string of landing scenarios? Equity markets have been steadily rising since last October (S&P +13.7%), but last month saw a temporary air pocket. (-2.6%). Similarly, the Dow Jones Industrial Average rose +13.9% since his October, but fell further in February (-4.2%). As I said earlier, investors are struggling to read all the economic dials, instruments and controls in the cockpit due to the lack of consensus on interest rates, inflation, economic growth, corporate earnings growth and employment. increase.
At one end of the spectrum are consumers who are willing to keep their jobs and spend their savings accumulated during the pandemic. Case in point, air travel has reached his pre-pandemic levels in 2019, but business travelers are staying home and doing business on Zoom (see red line above). chart below).
Source: Calculated Risk
On the other side of the spectrum, we are witnessing the devastating impact of a 7% mortgage rate on the public. $4 Trillion Real Estate Industry. As can be seen from chart belowsales of existing homes plunged at the fastest rate since the start of the 2008 financial crisis.
Source: Calafia Beach Pandit
That said, the consensus is building that inflation is steadily declining. Even the highly skeptical and hawkish Federal Reserve Chairman Jerome Powell said:A disinflationary process has begun.’ You can see that in this inflation expectations chart below (green line) measures average expected inflation over the next five years by comparing the yield differential between 5-year US Treasuries and 5-year TIPS (Treasury Inflation Protection Securities).
Source: Calafia Beach Pandit
There are many financial crosswinds swirling right now, but the good news is that in the short term the economy is holding its ups and there are no imminent signs of a hard landing. Certainly turbulence and changing weather conditions. You may face the possibility of , but that is always the case when investing in the financial markets. But if inflation continues to move in the same direction and growth continues to surprise upwards, there may be no landing at all. Under this scenario of maintaining a comfortable altitude, pilot training could be put on hold.
This article is an excerpt from the previously released Sidoxia Capital Management Free Newsletter (March 1, 2023).
Disclosure: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain Exchange Traded Funds (ETFs) but, at the time of publication, have direct exposures in other securities mentioned in this article. There was no suitable position. Information accessed through the Investing Caffeine (IC) website does not constitute investment, financial, legal, tax, or other advice and should not be relied upon in making any investment or other decision.Please read the disclosure statement of IC inquiry page.
Editor’s Note: The summary bullet points for this article were selected by the Seeking Alpha editors.
