Interest Rate Declines Will Bring Fated "Soft Landing," Says Earnings Maestro Sam Burns
Nov 9, 2023
01:03:25
auto_awesome Snipd AI
In this podcast, Sam Burns, Founder of Mill Street Research, shares his insights on the current state of equities, including the housing market, banks, commercial real estate, healthcare, commodity sectors, and Chinese stocks. He also discusses equity momentum, disinflation, global manufacturing, trade downturn, fiscal tailwinds in the U.S., and the potential for a soft landing with declining interest rates.
Read more
AI Summary
AI Chapters
Episode notes
auto_awesome
Podcast summary created with Snipd AI
Quick takeaways
The US economy has remained strong due to fiscal policies, such as COVID stimulus and infrastructure initiatives, providing stability and driving demand.
Earnings expectations for the S&P 500 index indicate a positive outlook for the US economy despite global weaknesses, with the US likely experiencing a slowdown rather than a recession.
Different sectors have shown varying performances, reflecting the impact of factors like interest rates, global demand, and fiscal policies, with winners and losers among sectors.
Deep dives
Fiscal Stimulus and US Economy
Despite a weaker global economy, the US has remained relatively strong largely due to its fiscal policies. The US has provided substantial COVID stimulus and implemented infrastructure initiatives like the Chips Act and the Inflation Reduction Act. These policies have helped drive demand and support economic growth. Additionally, automatic stabilizers, such as cost-of-living adjustments and tax bracket modifications, have provided stability. While the US may experience a slowdown, it is unlikely to enter a recession as long as fiscal support remains in place.
Earnings Expectations and Global Disparities
Earnings expectations for the S&P 500 index have held up well, with estimates for 2024 remaining stable. This indicates a consistent and positive outlook for the US economy, despite weaker global conditions. While countries like China and Germany struggle with structural issues and lack of demand, the US has been shielded to some extent. The divergence between the US and other economies may eventually converge, but the US is likely to experience a slowdown rather than a recession. The US will continue to be a source of demand and supply, with fiscal policies supporting growth.
Sector Performances and Market Trends
Different sectors have shown varying performances in response to market trends and earnings expectations. Companies related to construction, manufacturing, and software/services have displayed strength, while other sectors like commodities, healthcare, and commercial real estate have faced challenges. Tech companies have shown resilience in their earnings, despite concerns of a potential bubble. Financial sectors have seen improvements, with large banks ranking higher than regional banks. Overall, there is dispersion among sectors with winners and losers, reflecting the impact of various factors such as interest rates, global demand, and fiscal policies.
Large caps outperform small caps in the market
The podcast discusses how large caps have shown better performance compared to small caps in the current market. The speaker explains that large companies tend to have better access to financing, are more diversified, and have more global exposure, making them more stable and resilient. This trend is reflected in earnings estimates, where larger companies are performing better fundamentally than their smaller counterparts across different sectors. The speaker highlights the benefits of being overweight in large caps relative to small caps.
The expectation of a soft landing and potential risks
The podcast explores the possibility of a soft landing in the economy for the next six to twelve months. The speaker expresses confidence in a scenario of reasonable growth, low unemployment, and lower inflation. However, they caution against potential risks that could derail this scenario. Two main risks mentioned are policy mistakes, either through over-tightening by the Federal Reserve or fiscal policy errors, such as drastic spending cuts or tax increases. Additionally, unforeseeable shocks like a war or pandemic could disrupt the economy. The speaker emphasizes the importance of monitoring these risks and the impact they may have on the soft landing outlook.
In January of 2023, a time where extreme pessimism on stocks and the economy reigned, Sam Burns, founder of Mill Street Research, shared his bullish outlook on equities with Jack. Now that his prediction has come true, Sam returns to Forward Guidance to explain why he is much less overweight on equities now than in January, but that he remains somewhat constructive on risk assets even as he expects a modest slowdown in 2024. Filmed on November 3, 2023.
__
Timestamps:
(00:00) Introduction
(00:59) Less Overweight Equities Than In January... But Still Overweight
(06:54) Monitor of Analysts’ Earnings Revisions (MAER)
(11:31) The Housing Market (& Homebuilding Industry)
(15:18) The Banks
(16:50) Commercial Real Estate (CRE)
(18:43) Healthcare & Commodity Sectors
(20:18) Chinese Stocks
(23:55) S&P 500 Earnings Estimates
(31:40) Equity Momentum Has Weakened
(34:39) Disinflation Will Continue, The Soft Landing Is Here
(42:40) At What Point Does Global Manufacturing & Trade Downturn Impact The U.S. Economy?
(48:10) Fiscal Tailwinds In The U.S.
(54:20) If Interest Rates Decline, Soft Landing Very Likely
--
Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode