Soft Landing

The Uncontroversial Consensus

Summary:  Earnings season kicked off last week with the banks first to report. In general, they painted a relatively stable picture of the consumer and the economy. While growth has slowed some, the consumer is still spending and has high excess savings. A soft landing is the consensus at this point. However, the market’s expectations for rate cuts may be diverging some from the Fed.

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Macro

"The way we see it, the consumer is fine. All of the relevant metrics are now effectively normalized. And the question really, in light of the fact that cash buffers are now also normal, but that that means that consumers have been spending more than they're taking in, is how that spending behavior adjusts as we go into the new year in a world where their cash buffers are less comfortable than they were." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum

"The financial health of our consumers remained strong. While average deposit balances per customer continue to decline from their peak, they remained above pre-pandemic levels as wage growth has more than offset increased spending. Having said that, there are cohorts of customers that are more stressed. Consumer spending remained strong. Credit card spend was up 15% for the year and was remarkably stable throughout the year, with growth rates strong across all categories, except fuel, which was impacted by lower gas prices. Debit card spending was up 1% for the year. Discretionary spend growth slowed from a year ago while non-discretionary spend was stable." - Wells Fargo (WFC 0.00%↑) CEO Charles Scharf

"The consumers of Bank of America have had access to credit and not borrowing irresponsibly. Their balance sheets are generally in good shape and while impacted by higher rates, remember, many of them have fixed rate mortgages and remain employed, so they've shown great resilience." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

Savings still remain very high

"The point we've made is that our consumer deposit balances at Bank of America remain 30% higher than pre-pandemic…In the lower average balance size accounts, the balances in there still remain at multiples of pre-pandemic levels, nearly 3 years past the last stimulus. They are modestly declining. The deposit outflows you've seen in consumer have largely been driven by the higher balance accounts, who moved their excess balances into the markets to seek higher yields. We capture those with our leading wealth platform" - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

Debit card spend was up a little but credit card spend was up a lot

"Debit card spend increased 2% from a year ago, with both discretionary and non-discretionary spend up 2%, with growth in most categories except for home improvement, fuel, and travel. Credit card spending continued to be strong was up 15% from a year ago. All categories grew with double-digit growth rates in every category except fuel, home improvement, and apartment apparel." - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo

Consensus is expecting a soft landing 

"...it's uncontroversial that the economic outlook has evolved to include a significantly higher probability of a soft landing. That's, I think, the consensus at this point. So whether you believe it or not is a separate issue, but I think that is the consensus..Everyone wants to see a problem. But the reality we aren’t seeing any yet." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum

"We ended 2023 with economists projecting the Fed has successfully steered the U.S. economy to a soft landing...we think the soft landing is a core thesis and our internal data supports what our research team see so they get -- they see it all so through our institute." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

"We see some slowing in the U.S. economy potentially ahead, but not a recession. To be able to pull off a perfect, immaculate landing without any other real repercussions in the economy...is a tough thing to do." - The Bank of New York Mellon (BK 0.00%↑) CEO CEO Robin Vince

Growth has slowed

"...the year-over-year growth rate and spending from the beginning of '23 started declining. And it went from in the early part of '23 over the early part of '22 from a 9% to 10% growth rate to this quarter's 4% to 5% growth rate and that's where it stands here early in 2024...That growth rate, 4% to 5% is more consistent with the 2% GDP environment in a lower inflation environment." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

The C-suite is still a bit cautious 

"...there is just a little bit of residual anxiety in the C-suite, which increases as the companies get smaller in size." - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum

The Fed and markets have diverging opinions on rate cuts 

"This year again, I think the Fed and the markets are a little bit at odds. We had a Fed commentator talked a couple of days ago about March being too early. Notwithstanding that, the market think there's an 80% probability of a rate cut happening in March. So we're neutrally positioned in the outlook for 2024 on balance if rates -- if the rates happen -- happen this year, we might expect balances to go up. If it's higher for longer, we expect people to optimize and we say continued outflow of deposits." - The Bank of New York Mellon (BK 0.00%↑) CFO Dermot McDonogh

International