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What Does A Soft Landing For The Economy Mean Anyway?
Almost always #1 the number one most searched stock by retail investors in Trackstar, our proprietary sentiment indicator, The Juice will dedicate Wednesday’s installment to Tesla (TSLA). Like Bob Dylan did in 1965, we’re going electric. Stay tuned for that as well as other insights from Trackstar.
If you’d like a copy of the most recent Q3 Investor Search Report, click here. It’s free! We’ll be digging into it and other Trackstar tidbits in the weeks and months to come as we harness the power of Trackstar to suggest stocks and ETFs.
One of the questions we’ll ask going forward is does tech lead the way in the stock market or will other sectors emerge as a soft landing in the economy looks increasingly likely.
You hear this term a lot lately. On one hand, it’s intuitive. On the other hand, there’s more to it than that. That being the obvious — the economy doesn’t crash; it just lands softly.
First, let’s define soft landing. Then have a look at a major investment bank’s rationale on why they think the US economy will experience a soft landing and what this means for investors and your pocketbook.
The St. Louis Federal Reserve provides a nice definition of a soft landing, via economic policy advisor, Paulina Restrepo-Echavarria:
“I would say that a soft landing is when we increase interest rates and we manage to decrease inflation, but without causing unemployment to go up drastically and GDP growth to go negative,” Restrepo-Echavarria said.
“And a hard landing would be yes, we increase interest rates and we decrease inflation, but at the cost of a recession and high unemployment.”
However, she noted that there isn’t an exact definition of a soft landing, as it’s possible to have a mild recession without very high unemployment.
Sort of like the sense you get when your flight is landing. It feels like the pilot is toggling between getting closer to the ground, yet easing up slightly at the same time to produce a soft, rather than a hard landing. The Federal Reserve does something similar. It finesses the relationship between interest rates and inflation rates with the goal of avoiding a recession and keeping unemployment low — the soft landing.
The Juice basically suggested a soft landing last week as we discussed the relationship between inflation and the stock market:
What matters is that the stock market looks forward. And it likes what it sees:
Wall Street loves this picture. If you’re an investor, who just so happens to live on Main Street, maybe you do, too.
Goldman Sachs agrees.
The investment bank wrote a piece last week predicting a soft landing.
Let’s blow-by-blow Goldman’s rationale:
US GDP is projected to expand 2.1% in 2024 on a full-year basis, compared with 1% for the consensus of economist forecasts surveyed by Bloomberg. Goldman Sachs Research reaffirms its longstanding view that the probability of a US recession is much lower than commonly appreciated — at just 15% over the next 12 months.
So, no recession. And, in fact, decent economic growth.
With inflation falling and the job market buoyant, Goldman Sachs Research forecasts that the Fed will keep rates steady until a rate cut in the last quarter of 2024. Our economists expect that policy decision to be followed by a 25-basis-point cut per quarter until the fed funds rate reaches 3.5-3.75% (compared with 5.25-5.5% now) in the second quarter of 2026.
Goldman sees steady labor market data, falling inflation and rate cuts coming late next year from the Fed.
With GDP growth near the economy’s potential growth rate, conditions for the labor market are forecast to be roughly stable in 2024. Our economists put the current trend pace of job growth at around 175,000 per month, and they expect it to slow to 100,000 in the second half of 2024. The unemployment rate will likely hover in the mid-to-high 3s next year because the layoff rate remains low and job openings remain even higher than in 2019 — one of the best labor markets in US history — in nearly every industry.
The Bottom Line: We agree with Goldman Sachs.
For investors, as we indicated last week, this is good news. The stock market loves almost everything about this economy going forward. No recession, moderating inflation and a strong enough consumer to keep it all more than propped up. As in, to keep the economy growing.
For your pocketbook, as we also indicated last week, it depends on who you are. A soft landing doesn’t mean a damn thing to you if you’re experiencing a personal economic crash. Neither does a rising stock market if you don’t have a portfolio or new money to invest.
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