Beware: Bullish sentiment is improving, which is bearish from a contrarian perspective. On Tuesday, Rick Rieder, who is BlackRock’s chief bond strategist, said “I think the U.S. economy’s in much better shape than people give credit.” That's been our position for a while. In a May 23 report, the strategists at Evercore ISI reiterated that a hard landing is their base case with a 60% subjective probability. They acknowledged that "rolling sectoral recessions" might add up to a soft landing with 40% odds.
We've been at 60/40 in the soft- vs. hard-landing debate. On Monday, in our Morning Briefing, we changed that to 70/30. We've previously observed that the pandemic was a shock to all of our lives, and that the aftershocks continue. But there have been several shock absorbers that absorbed the shocks unleashed by the pandemic. They continue to do so.
Consumers have excess saving and are spending more on services, which is boosting employment in services. Retiring Baby Boomers are spending on restaurants, travel, and healthcare. Onshoring and infrastructure spending are boosting the economy. Multifamily construction is offsetting some of the weakness in single-family construction.