Economic factors that will indicate a soft landing in 2024
The Federal Reserve has been at the center of much of the discussion throughout Wall Street for 2023, speculating the nature of monetary policy decisions and their forward impacts. The discussion persists into 2024 as inflation appears to be cooling down, and it becomes increasingly likely the Fed plans to cut interest rates.
GLOBALT Investments Senior Portfolio Manager Keith Buchanan and Interactive Brokers Chief Strategist Steve Sosnick join Yahoo Finance to discuss the Fed's potential next moves and some of the factors that could indicate a soft landing for the economy in 2024.
Buchanan mentions financials as one sector that could deal with most scenarios: "We're looking selectively, we're warming up to what the financials and, particularly, the banks can offer, especially when we look up at the market cap skills of some the bracket banks."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
JULIE HYMAN: So Keith, going into next year, how do people gain an edge? What is going to outperform here in this GAAP environment as you talked about?
KEITH BUCHANAN: Well, I'm glad you asked that, Julie, because that's why we earn a fee. We feel like financials, particularly in the banking sector, there's some opportunities that have arisen because of the rate environment that has really taken hold the last two two, two-and-a-half months. If 2022 was-- in a nutshell, we'd say that was the year that the market was trying to catch up with the fed moving higher.
2023 was the market catching up with just how-- much higher for how much longer. 2024 seems like higher for longer turn to higher for not much longer. And we're looking for the different parts of the market that really haven't started to price that out in the most specific ways.
And financials, even though they have run, the low-hanging fruit seems to have been harvest. But looking forward, price [INAUDIBLE] at this point in the economic cycle really isn't to where it has been historically. There's still a discount that's been priced. Some of that's commercial real estate, which is largely held by some of the regional banks and it has a little more exposure there.
But as we look past last spring, the deposit lessons learned, liquidity lessons learned, as well as some names picked up really good assets at really cheap prices, given the turmoil from last spring. So we're looking-- selectively, we're warming up to what the financials and particularly the banks can offer, especially when you look up at the market cap scale to some of the bulge bracket banks.
- Keith, I love the way you described all of those different soft landing scenarios. Because as you say in your note, the whipsawing of this market is not necessarily a good thing. So Steve, I want to go to you on this because earlier I asked you this question, who is smarter right now, the bond market or the stock market? And what does that tell us about the landing?
STEVE SOSNICK: This is the tricky part. For years, I've always said, when the stock market and the bond market disagree about the economy, trust the bond market. The problem is the bond market got it much worse than the stock market this year. The stock market really did get it right in looking for a decent economy. And that's what we got.
The GDP numbers have been solid all along. We've been-- consumers are continuing to spend. Companies, for the most part, are making good money. Whereas the bond market has had this massive inversion. It's not as massive now as it was before, but it's still-- two-year yields are still 40 basis points, give or take, above 10-year yields, which is by historical standards, a quite dire prediction. And as Keith and I both mentioned, six to seven rate cuts priced in is a pretty dire prediction.
So first of all, I'm hoping the stock market got it right because I really don't-- none of us are rooting for a catastrophe. And so I don't know. Because I think the bond market, which had been the more reliable economic barometer for so many years, decades, it didn't work last year. And so your guess as good as mine, I guess, at this point. They couldn't give bonds away at 5%. And now, you can't get enough of them at three 385, 390. Who's rational there?
