A ‘rolling recession’ in the US could morph into a full-blown slump – and the Fed’s unlikely to slash interest rates in 2024, top strategist says

Liz Ann Sonders, Charles Schwab’s chief investment strategist.

Screenshot via Bloomberg TV

The US economy is in a “rolling recession” and a full-blown downturn looms, Liz Ann Sonders says.
Weakness in consumer goods and manufacturing is being offset by strength in services, she noted.
Charles Schwab’s chief investment strategist doesn’t expect a bunch of interest—rate cuts in 2024.

A recession is looming as pain ripples across the US economy, but investors shouldn’t hold out hope for a raft of interest-rate cuts next year, one leading strategist says.

“The leading indicators have absolutely imploded,” Liz Ann Sonders, the chief investment strategist at Charles Schwab, said during a recent episode of “The Meb Faber Show.”

“We’ve never seen this kind of deterioration in leading indicators” outside of an ongoing recession, she added. Sonders was referring to The Conference Board’s Leading Economic Indicators (LEI), which fell for a 16th straight month in July.

Several sectors including consumer goods and manufacturing have slowed sharply, and those are the parts of the economy “where you see the cracks and the weakness first,” Sonders said. However, she noted the trouble there is being offset by strength in service industries.

As a result, she argued the best-case scenario is not a “soft landing” but a “rolling recession” where different parts of the economy run into trouble at different times. Her personal view is that an official, full-blown recession is the more likely outcome.

In response to inflation spiking as high as 9% last year, the Federal Reserve has hiked interest rates from nearly zero to north of 5% over the last 18 months or so. Given the pace of price growth has slowed to about 3% in recent months, there’s a growing consensus on Wall Street that the Fed will slash rates aggressively in 2024.

“Now that’s not out of the question, but the view about significant rate cuts next year is often wrapped into the bullish, Goldilocks, almost no landing scenario,” Sonders said. “I wouldn’t be surprised if the Fed is done, but they may have to start pushing back on this market expectation of five rate cuts coming next year.”

Sonders, who previously worked as a senior portfolio manager at Avatar Associates, also remarked on the stock market defying the rate increases and jumping this year.

“This is the ultimate wall of worry year,” she said. “The markets like to climb a wall of worry.”

“I also think that this idea that the market is now fighting the Fed,  which it’s never supposed to — well, it didn’t last year,” she said, adding that historically stocks have rallied ahead of the central bank finishing its rate hikes.

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