Compared to the recession talk that was the rage only a few quarters ago, the Q2 earnings season has brought with it a different kind of outlook. The rhetoric from some of Wall Street’s most prominent firms has been more optimistic and has reinvigorated the market with the idea of a soft landing.
With the sentiment continuing to grow louder, the broader market averages have each traded well into the green on the year. In 2023, the Dow (DJI) rose 6.2%, the S&P 500 (SP500) pushed higher by 16.8%, and the Nasdaq Composite (COMP.IND) advanced by 32.1%. Similarly, the advance has provided backing to the indices mirroring exchange traded funds (DIA), (SPY), (IVV), (VOO), and (QQQ), which have each tracked higher in 2023.
In the early innings of the Q2 earnings season, this is what some of the Street’s biggest financial leaders had to say about the economy:
- “I think the Fed is going to successfully engineer a soft landing. I think it will probably happen in 2024,” stated Chris Gorman, CEO of KeyCorp (NYSE:KEY).
- Bill Demchak, CEO of PNC Financial Services Group (NYSE:PNC) added during the firm’s earnings call: “I think the soft landing feels right, and we’ll reflect on that as time comes.”
- “It’s very possible that we end up with a soft landing here. And I think even if we end up with a mild recession that it is not one that’s characterized by unemployment levels,” highlighted Timothy Spence, CEO of Fifth Third Bancorp (FITB).
The sentiment continues to broaden, with other top brass echoing an easy economic transition on the horizon. Here are some transcript excerpts from the past week found on Seeking Alpha:
- “It now seems more likely that the U.S. economy could have a soft landing,” Marriott (NASDAQ:MAR) CFO Leeny Oberg declared. “Our updated guidance range assumes relatively steady global economic conditions throughout the remainder of 2023 with continued resilience of travel demand.”
- “Shifting to the economy, we are increasingly seeing more green shoots,” noted Kilroy Reality CEO (NYSE:KRC) John Kilroy. “Inflation is cooling and the labor market appears to be healthy, near-term recession probabilities have been reduced and the idea of a soft landing is becoming more plausible.”
In fact, mentions of “soft landings” during earnings calls this quarter are up nearly 100% compared to Q1, per data from market intelligence firm AlphaSense. Further supporting the sentiment was Bank of America, which made a big U-turn this week and revised its outlook for the U.S. economy. It is now in favor of a soft landing, where “growth falls below trend in 2024, but remains positive throughout our forecast horizon.”
However, there are still some market experts who have not changed their tune, such as Michael Darda, Chief Economist & Market Strategist at Roth MKM. In comments on Thursday, Darda stated that he “remains firmly in the camp that there is likely to be a recession between 2H23 and 1H24.” At the same time, J.P. Morgan also noted that equity valuations are not pricing a soft landing: “We remain skeptical of this outcome, however, anticipating the inflation decline to prove incomplete, leaving restrictive policies in place that should increase private sector vulnerabilities and end the global expansion.”
However, Seeking Alpha analysts, like Christopher Robb, have weighed in to express the likelihood of a soft landing: “Wall Street is a ‘tribe’ in some ways, like any other industry or group. It has an orthodoxy on monetary policy and inflation that has blinded many in finance and resulted in spurious conclusions. Properly navigating economic cycles is difficult in the first place – even more so when you throw in simultaneous demand and supply shocks of an intensity never experienced. Accepting that many correlations that have traditionally provided insight may no longer be functional is essential to navigating today’s markets.”
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