Stock Market Insights: Stock landing

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management. https://www.facebook.com/Dr.RichardBaker

My daughter is flying to Israel today. This is our college freshman’s first big trip without her mom or me. So I guess airplane landings are on my mind and in my prayers today. The analogy of a soft or hard economic landing seems to be what all the talking heads on cable TV want to discuss. But the economy will land this year, and here is the type of landing I see ahead.

The “landing” analogy started being used for the economy in the early ‘90s and continues to be the preferred analogy. This analogy often has two potential endings, a soft or a hard landing.

A soft landing describes when the economy leaves a difficult time and smoothes out when economic growth slows but stays positive and becomes the foundation for long-term steady growth. The opposite of that would be the hard landing.

A hard economic landing describes when the economy leaves a difficult time, and the U.S. falls into a recession. The reasoning behind this is that the economy has become so overheated and unsustainable that the Federal Reserve has to raise rates so painfully high that it humbles the economy into submission.

The Fed was late to the game, but they are making the right moves. They are expected to raise rates again this month and maybe again in April to cool the economy to finish transitioning for a good landing. We are still in the process of moving from a fast-growing market following the pandemic fueled by inflation and government stimulus money to a more normal economy that grows because of the productivity of publicly traded companies.

It may not be a soft landing, but it will be closer to a soft landing than a hard landing. The Fed will get inflation under control with a possible mild recession but will lead to a more stable market by year-end. They may keep interest rates higher for longer than we hoped, but LPL still sees the S&P 500 as having a target range of 4,300-4,400, which would be a potential high-single-digit return by year end.

I was flying with my mentor to Ecuador a few years ago. The airport in that country’s capital is at a high elevation, and the landing was pretty rough. I looked at him and said, “that was a bad landing.” He smiles at me and says, “every landing you walk away from is a good landing.” The Fed may pilot us to a bouncy landing, but we will walk away from it if we keep our seatbelts on and don’t jump out of the plane.

Have a blessed week!

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