Analysts Expect Consumer Spending Will Support Soft Landing, Moderate Growth in 2024

Key Takeaways

Some economists are forecasting a “soft landing” in 2024, while others see a “Goldilocks” economy.Analysts point to consumer spending expectations as a driver to keep the economy growing. The stock market could dip in the spring before rebounding later in the year.The bond market may be set to surge on a drop in interest rates.

After a year of high interest rates wasn’t able to sink a surging economy, raising a question for 2024: Is a “soft landing” coming?

Whether inflation can continue to fall without creating an economic slowdown is the topic of many of 2024’s economic outlook predictions. Some expect the slowdown that didn’t come in 2023 to materialize in some form next year, while others see an economy that will continue to power forward.

Here is some of what analysts are saying about 2024.

Soft Landing? Hard Landing? No Landing?

Is the elusive soft landing coming? It depends on who you ask, with predictions on economic growth ranging from anemic to robust. 

Bank of America Securities analysts think a soft landing is the most likely outcome. They predicted growth will remain positive throughout the year and annual gross domestic product (GDP) will finish higher by 1.4%.

“Corporate America, and consumers, were actually better positioned for a higher rates environment than they have been in many decades,” wrote Savita Subramanian, BofA head of U.S. equity and quantitative strategy.

Wells Fargo analysts forecast an economic slowdown in early 2024 before the economy mounts a recovery later in the year for a full-year GDP increase of 0.7%.

Commonwealth Financial Network predicts a much quicker expansion, predicting annual GDP growth of 3.75%.

“We expect a Goldilocks economy—one that offers full employment, economic stability, and moderating inflation,” Commonwealth wrote in its outlook.

However, not everyone thinks GDP will end the year positively. Analysts at Vanguard see the overall GDP growth falling to 0.5%, with negative quarters coming in the second half of the year. 

Spending Will Likely Drive the Economy

Economists pointed to different trends that should help drive economic growth, especially the continued strength of the consumer. Consumers will keep spending in 2024, BofA said, but at a slower pace.

“We see consumption growth remaining positive. That’s two-thirds of GDP, that’s what helps keep the economy out of a recession,” said Michael Gapen, Bank of America head of U.S. economics, during an investor call.

It’s the non-consumer segment, primarily business and manufacturing spending, where the economy will likely slow down, Gapen added.

But LPL Financial painted a different picture for 2024, where increasing debt burdens lead consumers to deplete savings, leading to an end in the consumer spending that helped keep the economy driving forward in 2023.

“We expect the spending splurge to end,” LPL Financial wrote.

Lower Interest Rates Ahead

While Vanguard analysts don’t believe the economy can avoid a slowdown, they do see positive developments for the economy in 2024. Specifically, they believe a higher interest rate environment will help return some stability to lending.

“A return to sound money is the best market development in 15 years,” said Joseph Davis, chief global economist at Vanguard, on an investor call.

Others forecast that the Federal Reserve will begin to lower rates in 2024, but only gradually. Similar to recent Fed forecasts, Wells Fargo, Commonwealth, and Comerica all forecast a 75-basis-point cut to the federal funds rate, bringing rates down to a range of 4.75% to 5%. Vanguard, which forecast slower growth, expected steeper cuts to around 3.5% to 4%.

A Big Year for Bonds

Vanguard said the rise in interest rates over the past year provided the best economic development for long-term investors in two decades.

Bonds are back, for sure,” Davis said.

Vanguard raised its forecast for annualized returns for U.S. bonds to 4.8% to 5.8% over the next decade, compared with its 1.5% to 2.5% outlook before the rate hiking cycle.

LPL Financial thinks that Treasury yields could stay higher in the near term before dropping when interest rates are cut, at which points bonds would offer “compelling value.”

Markets Expected to Dip and Rebound

Several outlooks point to stock market volatility throughout the year, with analysts seeing similar paths for the benchmark S&P 500.

LPL Financial targeted the S&P 500 at 4,875 at year-end. Commonwealth’s mid-range target was 4,750, where Comerica’s analysis also landed. Wells Fargo forecasts markets to dip and rebound in 2024, with the S&P 500 reaching a mid-range target of 4,700.

“We’re kind of looking for the stock market to face a few headwinds, more from the economy than from interest rates, and then pull out of that, ahead of the turn in the economy, as it normally does,” said Gary Schlossberg, global strategist for the Wells Fargo Investment Institute

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