No Landing Scenario

What if a no-landing scenario plays out, a view gaining traction amongst a few economy watchers? 

The economy still created jobs in September despite tech giants slashing jobs.

Total nonfarm payroll employment increased by 254,000 in September, and the unemployment rate changed slightly to 4.1 per cent, according to the US Bureau of Labor Statistics September news release.  

It looks like a no-landing scenario from a big employment picture perspective if you believe the BLS

But big tech massive layoffs since 2024 depict a crash landing.

So far, in 2024, 222,236 people lost their jobs in big tech companies.

Moreover, in August and September, major companies like Intel, Cisco, and Infineon announced large-scale job cuts,

According to reports, 44 companies collectively laid off 27,065 employees in August, a sharp increase compared to July, which saw 39 companies cutting 9,051 jobs.

When the Fed started its long-anticipated 50 basis point rate cut on September 18, the economic storm clouds were gathering. 

The labour market was suddenly slowing down, saving rates were plunging, and the soft data looked dismal, with business and consumer confidence levels plunging. 

Natural disasters, mini construction boom and a no-landing scenario

The recent Hurricane Milton caused a staggering $50bn in estimated damage.

Downed power lines and an estimated 150 homes wrecked, many thousands left with damaged roofs or some other kind of building damage as debris smashed into buildings.

The infrastructure damage to barrier islands and the roof ripped off a basketball stadium, along with toppled construction cranes, means a massive clean-up repair work could support the trajectory of economic growth above the 10-year average going into the final quarter of 2024. 

But because worksites were closed temporarily, and people had trouble getting to work, there will be a temporary spike in weekly unemployment claims and an uptick in unemployment in the affected regions.  

Higher savings rate a tailwind for no landing scenario 

So, there has been a raft of upward revisions since the Fed rate cut meeting in September, which support a no-landing scenario.

GDP, household spending, consumer income and saving rates were revised upwards.  

Higher savings rates could explain why households have held up well during the Fed tightening cycle. 

The revised savings rate for July was 4.9%. The old version of the savings rate for July was just 2.9%.

The revised savings rates are relevant to future spending because they showed that consumers spent substantially less than they made going back through 2022, and saved the rest, which bodes well for future consumption.

Could immigration support no landing scenario?

Perhaps the large-scale influx of legal and illegal migrants, estimated by the Congressional Budget Office at around 6 million total in 2022 and 2023, plus more in 2024, has lifted some of the data.  

Many could have joined the labour force, working, earning money, and spending money, thereby increasing income and spending data.

What does a no-landing scenario mean for investors?

If the Fed’s most aggressive rate-tightening cycle in decades in 2023 did not trigger what many thought, including us, would be a steep economic downturn, maybe even a depression, then the Fed’s monetary loosening cycle in 2024 to 2025 could support a healthy economy.

Perhaps investors have been too overly pessimistic about the trajectory of the largest economy in the world. 

Higher saving rates, a tailwind for future consumption, natural disasters, a mini construction boom, and new blood immigrant energy keeping wages in check are all tailwinds for the economy.

Risk on and no landing scenario 

An uptick in the economic cycle could mean risk-on assets outperforming risk-off assets.

The risk assets examples include equities, commodities, high-yield bonds, real estate, stocks, currencies (forex) and cryptocurrencies.

Investors with higher risk tolerance, leaning towards risk-on assets, tend to outperform investors with low-risk tolerance bias towards safe-haven assets.  

Central bank loosening and the Presidential cycle supports no landing scenario

Investors who buy risk-on assets early in the central bank loosening cycle tend to outperform the market. So, with a no-landing scenario looking likely, this could be even more the case.

Moreover, a historical comparison has shown that post-presidential elections tend to favour stocks and risk on assets.

US elections do have an impact on stock prices. 

Historically, the 3-month period following the US elections has seen higher average returns, compared to the 3-month pre-election period, reflecting reduced political uncertainty.

The first year of a new presidency typically results in a boost in market profits relative to the rest of the four-year presidential term, with the anticipation of new economic policies.

No-landing scenario and short sellers capitulate

So if the economy enters no deep recession and somehow the Fed has managed to tighten monetary policy and create a no-landing scenario with the economic engines idling along nicely, the short sellers could capitulate. 

Short sellers could become forced buyers in a no-landing scenario.

No landing scenario devil advocate

The wildest of wild cards is human behaviour, which can sometimes be completely erratic, unpredictable and dangerous. 

For example, a commercial pilot deliberately flying his plane into a mountain, killing himself and all the passengers or the 2021 January 6 mob coup d’état two months after a Trump defeat in the 2020 presidential election in Washington.

The no-landing scenario could also crash if a repeat of January 6 2021 plays out.

If neither side accepts the election results, will the world’s largest economy, and leader of the free Western world end up in a civil war?