Multiple factors support it! Is the US economy really going to "soft land"?
Some analysts believe that the U.S. economy may not experience a "soft landing" but rather continue to expand. Alicia Levine from BNY Wealth points out that the banking sector's performance has exceeded expectations, with net interest income also higher than expected, indicating a strong economy. She predicts that the S&P 500 index will reach 5900 points by the end of the year, with third-quarter GDP growth approaching 3%. MRB Partners also believe that corporate profits are higher than pre-pandemic levels, supporting economic growth, but warn that inflation may pose a challenge
Some analysts believe that the U.S. economy may not experience a "soft landing".
A soft landing refers to a scenario where economic growth slows enough to bring inflation below the Federal Reserve's 2% target without causing a recession. Many Wall Street insiders anticipate this scenario for the U.S. economy as the Fed has already started cutting interest rates.
However, Alicia Levine, the investment strategist and stock manager at BNY Wealth, holds a more optimistic view. She believes that the U.S. economy is in a "no landing" scenario, as it continues to expand without slowing down. She stated on Tuesday, "It's pretty clear at this point that bank earnings have been above expectations, both in terms of revenue and profits. Net interest income has also exceeded expectations. So, this is a good signal for the economy."
Levine added, "This suggests that our call for 'no landing' is actually working." Her comments came after several banks, including Wells Fargo and JPMorgan Chase, reported better-than-expected performance last week.
Meanwhile, Bank of America reported strong earnings on Tuesday. Levine's target for the S&P 500 index by the end of the year is 5900 points, noting that the U.S. real GDP growth rate in the third quarter was "very close" to 3%. Previously, the U.S. economy grew by 3% in the second quarter. She continued, "As long as the U.S. economy grows at a rate above 2%, this is not a landing."
Not only bank earnings are supporting robust economic growth. According to data from MRB Partners, overall profits of U.S. companies are at historical highs, about 60% higher than pre-COVID-19 levels. The company also expects the U.S. economy to continue expanding.
Peter Perkins, the global strategy partner at the company, wrote in a note on Tuesday, "The strong financial position of the U.S. corporate sector suggests that hiring and capital expenditure levels will remain healthy, and the corporate sector will continue to be a pillar of the overall U.S. economy. However, if inflation persists and the Fed is unable to cut interest rates significantly as investors expect, the economy and stock market may face some resistance."