The Economics of Optimism: How a Downturn Could Propel the Stock Market to New Heights

Written By Michael Gary Scott
stock market boom - From Layoffs to Liftoff: Why the Economic Slowdown Could Fuel a Stock Market Boom

Source: bluebay / Shutterstock

Signs indicate a slowdown in America’s economic expansion. Layoffs are on the rise, with over 84,000 announced in February. The number of full-time jobs dipped, and the Fed revised down its fourth-quarter GDP growth estimate. However, this slowdown could pave the way for a stock market boom as it sets the stage for Fed interest rate cuts later this year. The U.S. economy seems to be headed towards a soft landing, potentially leading to lowered inflation and expected rate cuts that institutional investors have been eyeing.

Surge in Layoffs and Fed’s GDP Forecast Cut

February saw more than 84,000 layoffs in the U.S., reported by Challenger, Gray & Christmas, marking the highest level since 2009. Despite a 3% rise in planned cuts versus January and a 9% jump compared to a year prior, layoffs were forecasted lower in 2024’s initial two months. A notable portion of these layoffs occurred in the tech sector, likely a strategic move rather than a reactive measure.

While full-time jobs dropped by 187,000 in February and the Fed downgraded its first-quarter GDP growth estimate from 4% to 2.5%, the tech industry’s robustness suggests a steady job market for those affected. Nonetheless, watching macroeconomic indicators is crucial to prevent a rocky landing impacting businesses.

Anticipated Rate Cuts by the Fed

The economic deceleration should give way to the significant rate cuts the market anticipates. Fed Chair Jerome Powell hinted at rate cuts in March, pending further proof of declining inflation. Speculation suggests an average of 0.75% cuts in 2024, potentially commencing as early as June. Forecasts indicate the central bank might initiate four or five rate reductions of 0.25% each, easing investor concerns. A favorable outcome could ignite a substantial market upsurge, driven by the prospect of rate cuts

See also  Nasdaq Bulls Look to Defend Key Support for a Fresh Rally, Eyeing Higher Lows

No positions are held by Larry Ramer directly or indirectly in the securities referenced. The views expressed in this article abide by the InvestorPlace.com Publishing Guidelines.

Larry Ramer, with over 15 years of U.S. stock research and writing experience, previously contributed to The Fly and Globes. He began his InvestorPlace column in 2015, featuring several successfully contrarian picks. Follow him on Stocktwits at @larryramer.