Anatomy of a Recession Update: Threats to a Soft Landing

With lots of chatter in the United States around the potential for a soft landing, Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments, shares his thoughts on the matter and the overall state of the US economy in our latest “Talking Markets” podcast.


Jeff Schulze: Thanks for having me.

Host: Jeff, we’ve kicked off the fourth quarter and are looking forward to your economic and market outlook. Let’s start with the US economy. There’s been quite a bit of optimistic chatter focused on this idea of a soft landing. Has your view on this topic changed?

Jeff Schulze: Well, obviously, with some resilient data, you were going to get this chatter about a soft landing. But the path to a hard landing, which is a recession, the first stop is always going to be a soft landing.

When you think about investing and mountain climbing, they’re both judged by the ability to move higher. And the journey higher is never smooth. Experienced climbers understand that heightened concentration is paramount once the crux, which is the toughest part of the route where the hardest moves and challenges are concentrated, is reached. And while the consequences of the failure in the stock market pales in comparison to an actual climber, we continue to believe that the crux for investors lies over the next two to three quarters as both fiscal stimulus and consumer resilience fades—and, at the same time, the lagged effects of monetary tightening start to take hold.

So we worry that many investors have fully embraced this soft landing narrative, potentially at the most dangerous part of this cycle’s climb. And if you look over corporate filings, transcripts and presentations going back to 1995, the term “soft landing” spiked a couple of quarters before the actual onsets of both the recessions in 2001 and 2007. So yes, you’re hearing a lot about a soft landing, but that always transpires before you head into a recession. So I think investors may be best served to remain skeptical that we’re out of the danger zone quite yet.

Host: So to this point, the economy has been holding on, remaining resilient. You’ve mentioned concerns. Can you talk more about those concerns?