{"id":12925,"date":"2024-01-08T14:06:59","date_gmt":"2024-01-08T14:06:59","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12925"},"modified":"2024-01-10T17:20:52","modified_gmt":"2024-01-10T17:20:52","slug":"will-the-economy-achieve-a-soft-landing-heres-what-history-says","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-the-economy-achieve-a-soft-landing-heres-what-history-says\/","title":{"rendered":"Will the Economy Achieve A ‘Soft Landing’? Here’s What History Says"},"content":{"rendered":"\n

What History Tells Us About an Economic \u2018Soft Landing\u2019<\/strong><\/p>\n\n\n\n

Will the U.S. economy avoid a recession in 2024, which by extension would deem the Federal Reserve\u2019s rate hike campaign a success?<\/p>\n\n\n\n

That\u2019s what every investor wants to know.<\/p>\n\n\n\n

Before I offer my take on these questions, I think it\u2019s worthwhile to look back in history for past examples of Fed-engineered \u2018soft landings,\u2019 and also to assess how the equity markets responded. One could argue that the U.S. economy was heading for a soft landing in 2020 on the heels of interest rate hikes in 2019. The labor market was strong, and economic output was steady. But then the pandemic happened.1<\/sup><\/p>\n\n\n\n

The next historical example of a soft landing requires us to look back to the mid-1990s, which underscores another historical fact: soft landings aren\u2019t all that common.<\/p>\n\n\n\n

Will There Be a Recession in 2024?<\/a><\/span><\/strong><\/p>\n\n\n\n

The question on all investors\u2019 minds right now is \u201cwill there be a recession in 2024?<\/em>\u201d<\/p>\n\n\n\n

To help you get insight into this question and make the most of the new year, I suggest focusing more on the fundamentals and data that will help guide your investing decisions.<\/p>\n\n\n\n

Today I am offering all readers our just-released January 2024 Stock Market Outlook report, which contains some of our key forecasts to consider such as:<\/p>\n\n\n\n

\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<\/p>\n\n\n\n

IT\u2019S FREE. Download the Just-Released January 2024 Stock Market Outlook2<\/sup><\/a><\/span><\/strong><\/p>\n\n\n\n

In 1994, Alan Greenspan\u2019s Federal Reserve raised rates six times (adding a seventh hike in early 1995), as he was worried about an overheating economy driving inflation higher. Greenspan\u2019s Fed doubled the benchmark Fed funds rate from 3.05% to 6.05% over that period, and the S&P 500 endured a volatile stretch in 1994. Stocks were up a paltry +1.33% that year (with dividends reinvested), while experiencing a -9% intra-year decline along the way.<\/p>\n\n\n\n

Many readers likely remember what happened next, however. Greenspan\u2019s Fed stopped raising rates in 1995 and even implemented some modest cuts (which, to note, is what we\u2019re expecting in 2024). The economy and stock market did very well in the years that followed. U.S. GDP growth \u2018bottomed out\u2019 at 2.2% in Q4 1995, and the S&P 500 rallied +37.20% that year, +22.68% in 1996, +33.10% in 1997, +28.34% in 1998, and +20.89% in 1999.3<\/sup><\/p>\n\n\n\n

The chart below shows the benchmark Fed funds rate during the 1990s decade. Readers can see the period of rate hikes in 1994 that corresponded to a challenging year for stocks, and also the slightly falling \u2013 but largely steady \u2013 rates that followed for the remaining years of the decade.<\/p>\n\n\n\n

Federal Funds Effective Rate, 1990 – 2000<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis4<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

In my view, the stock market\u2019s rally late last year was a nod to the distinct possibility that the economy could keep growing modestly, but positively, in 2024 as the Federal Reserve positions for rate cuts \u2013 much like we saw in 1995. With inflation currently running at about 3% year-over-year, there\u2019s not much justification to keep the fed funds rate at 5% to 5.25%. That feels overly restrictive, and the Fed has acknowledged as much.<\/p>\n\n\n\n

Even though the Fed was raising rates last year, I think there\u2019s a good comparison between 1995 and 2023. In both years, the economy continued growing despite rapidly rising rates, and the stock market posted strong returns in anticipation that rates would stop going up. The real question is, will 2024 look like 1996?<\/p>\n\n\n\n

To be fair, soaring worker productivity in the dawn of the internet age was a key to the 1990s economic boom. The year-over-year change in labor productivity rose from 0.5% in Q1 1994 to 3.7% by Q1 1998, a massive leap. I\u2019m not sure we\u2019ll see a similar jump in the coming year(s), but I do think there are some supply-side factors working in the U.S. economy\u2019s favor.
There has been massive investment in high-tech infrastructure and factories, and artificial intelligence could super-charge many companies\u2019 ability to offer goods and services at scale with fewer workers.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

In 1996, real GDP growth was volatile from quarter to quarter but rose 2.5% for the year, and the S&P 500 climbed +22.68%. I won\u2019t be so bold as to call for a similar outcome in 2024, but the idea of modest GDP growth with solid double-digit gains in stocks does not seem out of the realm of possibility.<\/p>\n\n\n\n

In fact, I think it\u2019s more likely than unlikely.<\/p>\n\n\n\n

To help better position yourself for what\u2019s to come in this new year, I am offering all readers our Just-Released January 2024 Stock Market Outlook Report.<\/a><\/span><\/strong><\/p>\n\n\n\n

This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n

\u2022 Zacks Rank S&P 500 sector picks
\u2022 Current asset allocation guidelines
\u2022 Zacks forecasts for the months ahead
\u2022 Zacks Rank industry tables
\u2022 Buy-side and sell-side consensus at a glance
\u2022 And much more!<\/em><\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<\/p>\n\n\n\n

FREE Download \u2013 Zacks’ January 2024 Stock Market Outlook Report5<\/sup><\/a><\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch takes a look at previous soft-landing scenarios to get clues as to whether we will avoid a recession in 2024.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-12925","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12925","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12925"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12925\/revisions"}],"predecessor-version":[{"id":12928,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12925\/revisions\/12928"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}