Macro Outlook: Rates and Profits Critical to the Path Forward

Editor’s Note: Every year, Loomis Sayles features sector outlooks across the fixed income market. We asked experts immersed in each sector three questions that drill into key themes for the year ahead. We will share their views in a series of outlooks over the next few weeks.

To set the stage, we’re starting with Craig Burelle, Global Macro Strategist, Credit, and his views on the macro backdrop in 2024.

1. Financial markets seem to have priced in a soft landing for the US economy in 2024. Do you agree with that view?

Yes, we do. While somewhat rare historically, depending on one’s definition, we believe a soft landing may be occurring right now in the US. We define a soft landing as a scenario in which US real economic growth remains positive, unemployment does not rise markedly and core inflation heads toward 2.5% by mid-year 2024.

On the Loomis Sayles Macro Strategies team, we firmly believe that corporate profits drive the credit cycle. A downturn appears less likely now that the US earnings recession has ended. As long as year-over-year corporate profit growth comes through in the mid-single-digit range, we believe a soft landing is achievable. With profits on the rise, companies are more likely to retain workers and avoid widespread layoffs.