A growing segment of investors is increasingly leaning towards a scenario dubbed “no landing” for the US economy, where inflation fails to hit the Federal Reserve’s 2% target, yet economic expansion persists.
According to the Bank of America’s Global Fund Manager Survey released on Tuesday, 36% of respondents view a “no landing” outcome as the most probable for the global economy. This marks a significant uptick from the 23% recorded a month earlier and stands as the highest level observed since June 2023.
In contrast, 54% of participants believe in a soft landing scenario, where economic growth decelerates without tipping into recession, and inflation returns to historical averages. This shift in sentiment reflects a departure from last year’s debate, which centered on whether a hard or soft landing awaited the economy.
Recent economic data, particularly March’s retail sales figures, bolstered confidence in the “no landing” thesis. Strong retail sales, especially in categories excluding volatile sectors like autos and building materials, hint at sustained consumer spending and economic growth.
Economists at Goldman Sachs and the Atlanta Fed have revised their first-quarter growth projections upwards, fueled by robust consumer activity. These revisions coincide with mounting expectations for inflation, leading many economists to speculate that the Fed may postpone rate cuts, potentially extending the “no landing” scenario into 2024.
Market indicators, such as surging 10-year Treasury yields and declines in interest rate-sensitive segments like the Russell 2000 Index, align with this narrative. Despite posing risks to valuation, this scenario could provide a fertile ground for earnings growth, particularly in large-cap sectors like Energy.
As the dialogue shifts towards a rosier economic outlook, investors remain cautiously optimistic about the trajectory of the US economy in the coming months.
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