Parts of the U.S. financial markets are bracing for a hard landing for the U.S. economy, as investors await insights into credit conditions from the Federal Reserve’s upcoming loan officer survey due this week.
“The last two rate hikes were nuts, to be blunt,” said Edward Yardeni, president of Yardeni Research, in a phone interview. The Fed “could really cause a problem coming and going.” The U.S. stock market ended sharply higher Friday, with the S&P 500 SPX closing at 4,136 for a year-to-date gain of 7.7%, according to FactSet data. But stocks were mostly down for the week, with the S&P 500 falling 0.8%, the Dow Jones Industrial Average DJIA sliding 1.2% and the technology-heavy Nasdaq Composite COMP eking out a 0.1% weekly gain.
Meanwhile, the Fed’s senior loan officer opinion survey on bank lending practices will be released on Monday. “It’s hard to imagine that it shows anything but credit conditions continuing to tighten,” said Yardeni. “It will certainly include responses reflecting the banking crisis.” Ten-year Treasury yields TMUBMUSD10Y dipped almost one basis point this past week to 3.445%, declining along with two-year yields for a second straight week, according to Dow Jones Market Data.In Bianco’s view, the Fed won’t cut rates unless there’s a “significant, unmistakable recession of greater-than-average magnitude with rapid deterioration in the labor force.” He described an average U.S. recession as having a 2% peak-to-trough contraction in gross domestic product over about a year.