The economy averting a hard landing is ‘laughable,’ and companies are about to see a profit recession, economist says

• The US economy won’t dodge a hard landing recession, according to Stephanie Pomboy.

• The economist said US consumers are already in a recession.

• That could be followed by a “double-dip” profit recession as corporate earnings take a hit.

The US economy can’t avoid a hard-landing recession, according to one top economist.

Stephanie Pomboy, who worked at ISI for a decade before starting research firm MacroMavens, is among economists who warned of structural problems in housing and credit markets ahead of the 2008 crisis. She warned in a recent interview of a coming “double-dip” profit recession for US companies, which could cause earnings to nosedive and spark big problems for the economy.

Her view stems from the Federal Reserve’s aggressive interest-rate hikes, with central bankers raising rates 525 basis points over the course of 17 months to tackle inflation.

And higher rates are likely here to stay for the time being, she said, despite investors pricing in hefty rate cuts to come later this year.

“We are not going to avert a hard landing,” Pomboy said in a recent interview with Rosenberg Research. “I think that this notion that the Fed could raise rates in record speed and magnitude on an economy, toting record leverage without economic or financial incident, is laughable.”

While some commentators have rolled back their recession calls, US consumers already look to be suffering from a downturn, Pomboy said. Retail sales have “gone nowhere for two years” and are already in recession territory when adjusted for inflation, she noted.

The consumer recession could soon be followed by a nosedive in corporate earnings, given that the full impact of Fed’s rate hikes has yet to play out in the economy. That will hit firms with higher borrowing costs at a time when profits already look poised to weaken, Pomboy said.

While stocks have soared nearly 30% over the past year, corporate earnings are up just 4%, she noted.

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“We’re actually going to have a double-dip profits recession. And again, that wherewithal to service higher cost debt is going to weaken substantially, and then we’ll have real problems,” she added.

According to Pomboy, that could end up delivering a swift blow to stocks, which have crushed a series of record highs this year. Investors risk being disappointed with the timing of rate cuts in 2024.

“It does feel like it’s an example of how much air there is under this market that can be quickly sucked out of there,” she said of the market’s expectations for rates to come down.

Pomboy’s view mirrors that of other market commentators, who have warned stock prices are rising to unsustainable levels. Stocks are looking like they did prior to the dot-com and ’08 market crashes, top economist David Rosenberg said in a previous note, suggesting the market is in a bubble poised to pop.

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