The latest economic indicators suggest that the economy is doing better than expected—supported by consumer spending but dragged down by the housing recession—but also that inflation remains too high. That alignment increases the odds of more Fed tightening than previously expected, a higher terminal fed funds rate, and a Fed-induced hard landing.
A hard landing isn’t currently our economic forecast—we see the growth recession continuing through year-end. But fears of a Fed-induced hard landing are increasing bearishness in both bond and stock markets. We are assessing whether our forecasts for both S&P 500 earnings and valuation might be too optimistic.