Hard landing, soft landing, or no landing at all — where exactly do investors stand on the US economy's trajectory while grappling with inflation?

Retail sales data released this week surprised to the upside, indicating that consumers are continuing to spend despite elevated inflation. As the economic resilience persists, a Bank of America Global Fund Manager Survey reveals a shift in sentiment. According to the survey, 36% of respondents now believe a "no landing" scenario could materialize in the next 12 months, a scenario where the economy avoids both a hard landing and a soft landing. In contrast, the proportion of those anticipating a hard landing or outright recession sits at just 7%.

Yahoo Finance's Josh Schafer breaks down the details, providing insights into the current economic landscape and the implications for markets.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

BRAD SMITH: Also, everyone, we're tracking retail sales. They came in higher than expected this week with a wave of economic data that we've been tracking, spelling out the consumer. And while concerns boil over, inflation's path lower, this sending expectations of a no landing scenario for the US economy higher. Here to break this down for us, we've got Yahoo Finance's very own Josh Schafer here on the desk with us. Hey, Josh.

JOSH SCHAFER: Yeah, Brad. So this no landing scenario-- so that scenario usually comes when inflation doesn't come back down to the long-term average target and the economy keeps growing, right? And so that has been a growing case that people are making on Wall Street. This morning, we saw a group make that out of the Bank of America Global Fund Manager Survey.

You can see here 36% of respondents saying they think a no landing scenario is the likely outcome for the global economy over the next 12 months. That's the highest we've seen since they started asking this question in June 23. And I think one of the things I wanted to point out here is you look at the purple and the blue lines, that's really the debate here. It's soft landing or no landing. The hard landing camp has basically been diminished down to less than 10%, the lowest we've seen thus far. Hard landing, of course, would mean that we get a recession at the end of this tightening cycle.

And I think, as this sort of speaks to the data that we've seen this week, last week, overall, right now, there's little signs that consumer spending is slowing down. You look at that retail sales number for the last two months coming in higher than expected getting revised up. You take a look at things like our chart of the day and the Yahoo Finance Morning Brief newsletter this morning, incomes are picking up, right? Across all three spectrums per other BofA Data.

So you're just wondering where is the consumer weakness going to come from. And if that consumer weakness doesn't come, maybe you just keep getting economic growth. And at some point, that growth keeps inflation from falling all the way down. Seana hates the term no landing. So let's go for it.

SEANA SMITH: So I have an issue with it because if that trend does continue, wouldn't you then argue that the Fed is going to say, hey, we actually have to do something? Maybe that next move isn't going to be a cut, and maybe we eventually have to hike? And then if they do that, then you can ultimately make the argument that, hey, that's going to actually enhance the chance of a hard landing, right?

So it's almost like this no landing scenario. And I get why it's catch on, and I get why so many people are talking about it now, especially given the market dynamics, but it's also still split. I mean, ultimately, we have to have a hard landing or a soft landing at some point in the economics.

JOSH SCHAFER: At some point, yes. I think when we're talking specifically about the survey, the key determining factor there was in the next 12 months.

SEANA SMITH: Exactly, yeah.

JOSH SCHAFER: And I think that sort of gets to how people are feeling about the Fed path right now, right? Because what if you don't cut this year? Then you get to a point early next year, which we are right now, where you're either cutting or hiking, right? Where are we in a year? Maybe unchanged, and I think that was sort of my takeaway from that perspective.

SEANA SMITH: Yeah, exactly. And you're right to point that out. And it was just about a year ago, wasn't it? When Torsten Slok first started to float this idea out of Apollo talking about this no landing scenario talking about the fact that we could almost be in the situation that we are in today.

And his forecast a year ago, I think it was just around 12 months ago, has proven to be right given some of the trends that we have seen, especially over the last three months. You can clearly make the argument. And yes, the data shows that we have made progress. The Fed has made progress in taming inflation, but still a far cry from where the levels that they wanted to be.

JOSH SCHAFER: And the other takeaway from this too that I've found interesting is you're not just hearing economists talk about it. You're hearing equity strategists talk about it, right? We just put up a chart from Mike Wilson over at Morgan Stanley, and he's sort of noted that what comes with the no landing scenario is potentially higher earnings. It also brings higher rates, right?

We've seen that big move up in the 10-year over the last month. He argues that's the market pricing in a no landing scenario. So you're going to have higher rates, maybe higher earnings, then the question is, where do you go? Someone like Wilson points to energy, where he thinks that earnings could still rebound and the valuation hasn't quite caught up. Not something like tech, where valuation is still high.

But I think that's an interesting debate too is, OK, what if this is the economic period we're in for the rest of '24? We get economic growth above trend, and inflation continues to sort of disappoint investors. What does that mean for the market? And is there a scenario where stocks can still survive that? Will be an interesting trend to watch, I think, over the next couple of months.

BRAD SMITH: Yeah. I mean, it was what? Beginning of March that we heard from Torsten Slok that he said, the Fed's not going to cut rates this time this year. I would also vote for a better travel analogy for our next economic cycle as well here, so.

JOSH SCHAFER: Because the plane always has to land. That's Seana's point. Yeah.

BRAD SMITH: My goodness, yes.

SEANA SMITH: Yes, the plane has to land at some point.

JOSH SCHAFER: So it's not really an outcome. It's a fair point.

BRAD SMITH: Like use a boat or something like that. I don't know. Anything else?

SEANA SMITH: That's going to be sinking to the bottom. All right. Josh, thanks so much.