2024 Economic Forecast: Perspectives from a Bull & Bear | 1.14.24

00:03
Speaker 1
With a new year upon us, questions about the US economy abound. Will the housing market continue to stagnate? Will interest rates finally return to normal? Is Wall street heading for a bear or bull market? And what about inflation?

00:17
Speaker 2
In this episode of Morningwire, we'll pose these questions and more to two market experts who each have very different outlooks for the year. Ahead, it I'm Daily Wire editor in chief John Bickley with Georgia Howe. It's January 14 and this is a Sunday edition of Morning Wire. Here to discuss where the US economy is heading in 2024 is daily wire senior editor Cabot Phillips. Hey, Cabot. So you spoke with two experts. So what did you learn?

00:47
Speaker 3
Yeah, when it comes to predicting which way the economy is trending, nearly everyone seems to have their own opinion. Some say we're doomed for a recession. Others say we're out of the woods and headed for a year of growth. Some say the housing market is a bubble ready to pop. Others say it's set for a strong year and that rate cuts will get the market firing up once more. With that in mind, I spoke with two market experts, each with decades of experience, for their thoughts on where we're heading. First was Joe Lavornia, who served as chief economist at the National Economic Council and is currently the head economist at SNBC. Lavornia is more in the bear camp, predicting a sluggish year across the board.

01:22
Speaker 4
The economic landscape is not good. It hasn't been good, I'd argue, for some time, but I certainly think it will be worse in a more traditional sense. And what I mean by that is we are going to see job losses alongside a rising unemployment rate. So the backdrop will deteriorate as we move through 2024. So no, I'm definitely bearish on the economy and then by default, bearish on the stock market.

01:46
Speaker 3
I also spoke with Kenny Pulkari, a market strategist and managing partner of case Capital Advisors. Pulkari is a self described bull on the economy and while generally optimistic about 2024, still does have some reservations.

01:59
Speaker 5
I feel fairly good about the economy. I'm a little bit cautious for the first quarter. I think we've already started to see some concerning forward guidance coming out of places like FedEx and General Mills and Nike. We saw that Walgreens cut their dividend by 50%. That's not necessarily a positive. That's causing some angst, I think, in certain parts of the market, and I think that's legitimate for the first quarter or so. I remain a little bit cautious. Doesn't mean I think we're going to see the market crash or we're going to have this disaster happen. I don't think that at all. But I am just cautious as we get into the first quarter of the season and then the next Fed meeting, which is the end of January, to kind of get any more clarity, if at all.

02:39
Speaker 5
And then I think as we move through the year, I think the market will stabilize. I don't think we're going to have this kind of returns next year, this year that we had last year.

02:48
Speaker 3
Now, throughout the last year, one of the biggest economic questions was whether were heading for a recession. While that did not technically materialize in 2023, there's still a debate about whether we're heading that way in 2024. And our experts had slightly different outlooks on that question. For his part, Pulkari believes we're heading for the long discussed soft landing this year.

03:09
Speaker 5
We avoided the official recession, right? They didn't call it because we didn't have in 2023. We didn't have those two negative quarters. But remember, when we did have those two negative quarters at the end of 2022, they also refused to call it then, and that was the classic definition of a recession. Yet they refused to call it because they weren't sure and all that stuff. So, yes, in 23, we didn't have the classic definition of it.

03:32
Speaker 5
But I think what we saw was, I think we started to see kind of rolling recessions in different industries as went through the year, which means, I don't think in 2024 that we're going to get a full blown recession reminiscent of the 1980s, where went into a deep, dark recession for two years because the Fed had a force rates to 21% to counteract what was resurging inflation, I don't think we're going to see that. Then. I think we come in for a softer landing, not a crash landing, not a hard recession, but a softer landing. I think there'll be bumps along the way. It's not going to be perfect, but it's not going to be the disaster that maybe people thought it was going to be, myself included, at the beginning of last year.

04:15
Speaker 3
But Lavornia is a bit less optimistic that a soft landing, where rates slowly come down and employment and markets hold more or less steady is on the horizon.

04:25
Speaker 4
We avoided a traditional recession in 22, but we had what I would call an inflationary recession in the sense that real GDP contracted. Now, at the time, the argument was, well, if you look at the income side of the data, which is a corollary or a companion to the GDP data, which are more known. The income data did not show the weakness, and many highlighted that in the administration, for example, that the income numbers look solid. Well, if you look at the income numbers now, they're actually telling us we're probably on the cusp of recession. So I would say this backdrop is at best mixed. And at worst, as I said, it will be a downturn. We'll be a recession in a more traditional sense.

05:03
Speaker 3
The other thing that economists and everyday Americans for that part have been tracking is if and when the Fed will finally begin to implement meaningful rate cuts. Remember, we saw the fastest pace of rate hikes since the 1980s over the last two years as the Fed raised rates nearly a dozen times in their attempt to slow the economy and theoretically bring inflation down. Pukari does not expect to see rates come down too quickly. He predicted only minor tweaks here or there.

05:30
Speaker 5
So could there have been a little tweak, maybe one, maybe two adjustments or cuts in rates to get it back to the 5% level? Sure, that I could see, but I was never of the mindset that they were cutting rates five and six and seven times. I am in the camp that if they're able to tweak them one or two by 25 basis points. Right. So maybe a half at the most. I'm not even sure that's true. Maybe a quarter, I think. Right. But by no means do I think the economy needs five or six or seven rate cuts, because remember, when the Fed cuts rates, what are they doing? They're stimulating the economy. We don't need to be stimulated. Unemployment is at 3.8%. That's historic lows.

06:16
Speaker 5
The economy is growing at a robust pace, according to all the data points that the Fed and the government tells us. So there's no reason to stimulate it.

06:25
Speaker 3
But Lavornia was a bit more optimistic on that front.

06:28
Speaker 4
Oh, definitely. Rates will come down, so bond yields will fall, meaning prices will go up. But I do expect stock prices to go down. And the reason I expect stock prices to go down is they've always gone down. When you've had a recession, they never not go down. We could debate about how much they'll go down. Maybe there'll be a mild recession. Maybe prices will go down only modestly. But if we have a recession, we have never not had stock prices move lower.

06:53
Speaker 3
Now, one thing that's really important to remember here is that 2024 is an election year, and traditionally the Fed has refrained from raising or lowering rates too much for fear of impacting the race during election years. If rates come down and Americans begin to feel some relief, it would obviously help President Biden ahead of November. While Biden has not outright called on the Fed to cut rates, saying he wants them to maintain their independence, he has definitely hinted that he wants them to go in that direction. However, other Democrats have been much more explicit in those calls. Congressman Roh Khan, for example, said last month that if Fed Chair Jerome Powell does not cut rates, quote, he may be the most responsible for the possible return of Trump.

07:33
Speaker 3
If rate cuts do begin and the economy benefits, don't be surprised if Trump says that it's part of a broader effort by the Fed to influence the election in Biden's favor. Here's Pulkari on the political implications of rate cuts this year.

07:46
Speaker 5
We typically know history shows that the markets tend to do okay in a presidential election year. What the Fed should not be doing is they should not be adjusting monetary policy or playing with rates six months ahead of the election for fear of being viewed as being political. Right? That they're trying to influence an election by using monetary policy and cutting rates. And or they could be raising rates. If they were trying to get the incumbent out, they'd raise rates and make the economy more difficult. In this case, if they're going to cut rates, it would be viewed as being political. It would be viewed as supporting one side versus the other, and that's exactly what they're not supposed to do.

08:21
Speaker 5
Which is another reason why I thought that whole five to seven rate cut thing was ridiculous, because the Fed would be called out and the people would be calling the Fed out saying that they're becoming political, which I don't think that they don't want to put themselves in that position.

08:33
Speaker 3
And here's Lavornia talking about the historical significance of potential rate cuts during this election year.

08:39
Speaker 4
If the Fed does cut this year, which I am expecting, this will be the first time since at least 1984 where the Fed initiated rate cuts in a presidential election year. So this is a very different backdrop today than we've had in very recent memory.

08:56
Speaker 3
We wrapped up by talking about the housing market, which exploded in 2021 and 22, but really ground to a halt last year as rates shot up and inventory came to a historic standstill.

09:07
Speaker 5
We've already seen mortgages come back in from 8%, where they were at the end of October, when the tenure was ticking, at a little bit better than 5%. So we've seen mortgages go from 8% back down to six and a half percent now for 30 year conforming money. So that's been a positive. And actually, again, anywhere between five and 7% is also historically normal for mortgages. Right. Mortgages at 2% or two and a half percent once again were abnormal. And so housing prices took off as a result of money costing so cheap. What's going to have to happen is if mortgage rates stay where they are, you're going to have to see some contraction in housing prices. You have to, they can't. They're just unsustainable. People are not going to be able to afford it.

09:51
Speaker 3
And when it comes to fears of a collapse in the housing market, Pulkari said he thinks certain pockets of the country could see a bubble getting ready to burst, but that nationally things should be a bit more stable.

10:02
Speaker 5
In parts of the country, I think there is a housing bubble. Other parts of the country I don't think ever got out of whack. So there's less of a housing bubble. So I think you have to look at where that action is. I think it's in some of the big cities. I don't know what's going on in Chicago. I can't imagine housing prices in Chicago going up. But I know certainly in New York they are. You can see it and in places where you've seen a mass migration. So whether it's Texas, whether it's Florida, whether it's the carol line is where people moved away from either the northeast or high tax states during COVID whatever, that they moved to these other parts of the country. That's where you see more of a housing bubble because there was actually this new demand in housing.

10:40
Speaker 5
But I think that's going to start to settle down as well because I know certainly down here they're starting to build once again like crazy down here. I live in South Florida, and so I do think over time, I don't think it's going to pop and crash like it did in 2007 and eight. But I do think that in parts of the country there are certainly bubbles in housing.

10:58
Speaker 3
So quite a few questions on the economy that remain unanswered, but plenty of things to keep an eye on this year.

11:03
Speaker 2
Yes, indeed. Cabot, thanks for reporting.

11:05
Speaker 3
Anytime.

11:06
Speaker 2
That was daily Wire senior editor Cabot Phillips. And this was a Sunday edition of Morningwire.