Source: Golden Ten Data
Morgan Stanley's chief investment officer said the data showed that the market was already pricing a “no landing” scenario for the US economy.
More and more investors believe that the US economy will face a “no landing” scenario, where inflation fails to reach the 2% target set by the Federal Reserve, but the US economy will continue to grow.
According to the Bank of America Merrill Lynch Global Fund Managers Survey released on April 11, 36% of respondents believe that the global economy is most likely to have a “no landing” outcome. This ratio is significantly higher than 23% a month ago, and is also the highest level since June 2023.
Meanwhile, 54% of respondents believe a “soft landing” is the most likely outcome, where economic growth slows but does not fall into recession, and inflation returns to the historical average.
The focus of Wall Street discussions has shifted. Only 7% of respondents believe that the US economy will have a “hard landing,” that is, austerity policies will force the economy into recession. Last year, the main debate on Wall Street was whether the US economy would achieve a “hard landing” or a “soft landing.”
Now, the focus of the debate has turned to whether recent economic data that exceeded expectations would hinder progress in curbing inflation. Tom Simons (Tom Simons), an American economist at Jefferies, wrote in an April 12 report: “Without some kind of catalyst, the recession will not hit the US, and we have not seen what factors will stop consumer spending so far. Demand in the US remains steady, and it is difficult to predict how inflation will continue to slow, and therefore how the Federal Reserve can cut interest rates.”
According to the March retail sales data released by the US on Monday, after excluding highly volatile categories such as automobiles, construction materials, and gas stations, core retail sales increased 1.1% month-on-month. This indicator directly affects GDP. Combined with an upward correction to the February data, economists raised their economic growth forecasts for the first quarter.
Goldman Sachs now expects the US quarterly economic growth rate to be 3.1%, higher than the 2.5% previously estimated; the Atlanta Federal Reserve's GDPNow tool predicts the first quarter's economic growth of 2.8%, up from the 2.4% forecast previously.
With the release of several consumer price data that exceeded expectations in the US for the first three months of this year, people's expectations for inflation are also rising. This has prompted more and more economists to speculate that the Federal Reserve may not cut interest rates this year, thus creating a “no landing” situation in 2024.
Nationwide's chief economist Kathy Bostjancic (Kathy Bostjancic) wrote in Monday's report: “Failure to moderately cool consumer spending and inflation will weaken the confidence of Federal Reserve officials that inflation is moving towards a sustainable return to the 2% target.” She pointed out that recent data is likely to delay the Federal Reserve's earliest interest rate cut until September, and maybe even until next year.
Overall, as investors' confidence in the US economy's “no landing” scenario increases, and economic data shows a stronger growth momentum, market expectations for the Fed to cut interest rates during the year gradually weakened.
Mike Wilson, chief investment officer at Morgan Stanley, believes that signs such as the recent rise in 10-year US Treasury yields and the fall in the interest-rate sensitive small-cap Russell 2000 Index indicate that the market is already pricing such a “no landing” scenario. He pointed out that under this scenario, not all stock market sectors will be negatively affected; on the contrary, it may create a healthier background for profit growth. For example, in the current interest rate environment, large market capitalization stocks such as large energy are preferred, and they are undervalued.
Edit/evans