A Rolling Recession or a Hard Landing? ft. David Rosenberg & Liz Ann Sonders
Sep 30, 2023
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Liz Ann Sonders and David Rosenberg discuss the possibility of a rolling recession or a hard landing for global markets. They explore various topics including the impact of the pandemic on the economy, inflation, transitioning to a new secular era, labor market dynamics, and decreased flexibility. Additionally, they analyze the performance of US stocks versus non-US stocks and emphasize the importance of broadening and equal weight within the market.
The current economic situation is characterized by rolling recessions and a nuanced recovery.
The difference between a soft landing and a recession is explained, with a warning that a recession is inevitable.
Expectations for inflation stability and the convergence of labor and profit shares of GDP are discussed, highlighting the importance of understanding factor-based investing and quality.
Deep dives
The possibility of a rolling recession and the nuanced nature of the economic recovery
The Chief Investment Strategist at Charles Schwab suggests that the current economic situation is characterized by rolling recessions and a nuanced recovery. She explains how the pandemic and stimulus measures led to a surge in demand for goods, followed by recessions in manufacturing and consumer-oriented sectors. The speaker believes that a recession is more likely than a soft landing, but she acknowledges the complexity of the economic cycle and the need for a more nuanced perspective.
The debates surrounding a soft landing versus a recession
The founder and president of Rosenberg Research discusses the difference between a soft landing and a recession. He explains that a soft landing is a transition phase between economic expansion and contraction, while a recession is a contraction phase. The speaker believes that the current phase is a soft landing, but warns that a recession is inevitable and that the stock market has not priced it in properly. He anticipates that the recession will start in the fourth quarter of this year or the first quarter of next year.
The outlook for inflation and the labor market
The Chief Investment Strategist discusses her outlook for inflation and the labor market. She expects a continuation of disinflation with some volatility due to base effects and energy prices. The speaker also highlights the convergence of labor and profit shares of GDP and suggests that this trend may compress profits. She believes that inflation stability is changing due to factors like advanced technology, aging demographics, and a different economic backdrop. She emphasizes the importance of understanding factor-based investing and the potential benefits of focusing on quality.
The potential impact of interest rates and Fed policy
The founder and president of Rosenberg Research shares his perspective on interest rates and Fed policy. He believes that the Fed will eventually cut rates aggressively to combat an impending recession. He predicts that rates will head back down to the zero bound, and he expresses a bearish view on equities. However, he does highlight potential opportunities in healthcare, staples, utilities, and the treasury market. He emphasizes the importance of understanding the yield curve and the potential impact of recessionary conditions on the market.
The market's anticipation of a recession and the role of the Fed
The speakers address the market's response to the possibility of a recession. They discuss how the stock market reacted to the reset in interest rates, but state that the market did not fully price in the profits recession. They emphasize that the timing of a recession is uncertain, but they believe that the Fed will eventually cut rates aggressively in response. They also caution against relying too heavily on historical cycles or averages, as there is a wide range of outcomes in different cycles.
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In the fourth installment of our Crash or Boom series, Maggie Lake welcomes two star financial analysts — Liz Ann Sonders, chief investment strategist at Charles Schwab, and David Rosenberg, chief economist of Rosenberg Research & Associates — for a peer-to-peer review of just what lies ahead for global markets. According to Liz Ann, “an ongoing rolling recession” may be the best scenario. David, meanwhile, believes we’re in economic purgatory with only one way out. Together they share their insights on inflation, business cycles, and more.
