Business Transformation | 04.19.23
From Economics to AI: BISA Members Weigh-in on Industry Outlook
by: Takeaways from the Dueling Economists session at the BISA Convention, presented by Gene Goldman, Tim Pierotti and Marc Zabicki
At this year’s Annual Convention, three BISA members took to the stage for a keynote session titled “Dueling Economists,” although they define themselves as “investment strategists” instead of economists. In the nearly two months since their session, the U.S. economy has already shifted, but many of their reflections remain relevant as our industry grapples with the current landscape.
We share a few thoughts from Gene Goldman of Cetera, Tim Pierotti of WealthVest and Marc Zabicki of LPL, and provide a round-up of recent articles for further reading.
First, our dueling economists addressed how they see a potential economic slowdown and eventual recovery playing out.
Gene’s perspective: “We do see a recession, and the Fed is going to drive it. The Fed pushed us into the most recent recessions. The good news is we anticipate a very mild recession. The labor market is so strong – there are 5.5 million more jobs out there.”
Marc’s perspective: “If you look at leading economic indicators, which is pretty important to calling the recession, the slope of the line indicates we are going to have one. There’s a treasure trove of fiscal stimulus still in pockets that have been helpful for the consumer. One of the reasons the job market is strong is because of reshoring activity. … We think we will have a modest recession with a modest recovery.”
Tim’s perspective: “There will be a recession, but it could be fairly steep. The Fed has moved 500 basis points. Credit is getting less available. Cost in capital is going up a lot and the availability is going down. Real credit pressure on the consumer level and corporate level… Employment will be coming off the bubble. In terms of recovery, I believe it will be L-shaped or W-shaped. … Labor shortages are not going away.”
Take a look at Forbes’ article tracking 15 economic indicators for of-the-moment info to that impending question, Are We in a Recession Yet?
The presenters then discussed their 2023 forecast for the S&P 500.
Marc’s perspective: “Since the 1930s, there have only been four times the S&P has finished down in back-to-back years… We think there is going to be improved sentiment largely based on the fact the federal reserve is going to end its tightening cycle. The rate cycle is not going to change until late 2023 or early 2024. Fairly bullish, but most of that is the foundation laid in mid-2022 when the market got oversold.”
Gene’s perspective: “The good news is we’re expecting a mild recession like in 2001. The S&P is down almost 20%. The bad news is, we expect a downturn like 2001. There was a huge run up in terms of Y2K and tech spending and the tech bubble. … It’s a tale of two markets. A lot of volatility and market valuations are down. This is great news but not reflective of high interest rates.”
Read this article from Investing.com for info on where the S&P 500 is at this week.
They also explained how they see the future outlook of the S&P.
Gene’s perspective: “The 10 year is, as we know, tied to mortgage rates. If the Fed gets it right, this pushes down inflation and we do see the two-year stop, and there’s less pressure. If the Fed gets it wrong and raises rates, there will be downward pressure on the 10 year. We are optimistic for the bonds and interest rates, but cautious for high yield. We do believe as we head toward a potential recession, we are weary of a high yield.”
Marc’s perspective: “My high-yield call is in agreement with Gene. Giving low in the twos a little bit. We think low bonds offer a great opportunity for investors. If we weren’t so bullish on equities, we’d be pounding the tables on bonds. We’ve sat in this room and asked the question of, ‘ok, where am I getting my income and yield from?’ If you have that opportunity, you probably will wish you did two to three years from now. We think inflation will be tamer at the balance of 2023… If it wasn’t for COVID, we might be at 2% inflation and treasury yield.”
Tim’s perspective: “I don’t see inflation just going away. I don’t see the Fed winning this battle. We have a secularly tight labor market. We have really hot inflation. If we are going to have a recession over the next six or nine months, the two year yield will come in a lot more. … We have a 1.5 trillion deficit forecasted in 2023 when unemployment is at 3.4%.… With the debt doom scenario we could be in a situation where you have a lot of demand.”
Further Reading: Us Debt Ceiling Deadline Could Be Sooner Than Anticipated, Banks Warn
The investment strategists discussed numerous relevant topics, including the emergence of AI and its importance to the industry.
Gene’s perspective: “I think tech, not just AI, is going to be very important. Doctors and lawyers can read cases using AI. Thebigger story about AI is really just technology. Labor costs are high. How do we protect our profit margins? Use AI to protect productivity. Capital spending is at historic highs, especially towards tech.”
Marc’s perspective: “There’s a reshoring happening, because of higher cost of production in the U.S. Tech spending, capital spending and new tech will try to reduce the cost of production.”
Tim’s perspective: “It might create a lift in productivity in some industries, but it’s hard to measure. Productivity growth was only 1% in the last couple of years. But look at what you’re comping against that gave us the 2% growth. iPhone, email at your desk, etc. – will AI be comparable to having an iPhone? Maybe in some industries. There are terrifying aspects from a misinformation standpoint.”
Further Reading: Generative AI Could Raise Global GDP by 7%
As the U.S. economy continues to evolve, we can all use help navigating the current landscape. Continue having these conversations with your colleagues and even industry competition — you’ll learn something, even if you don’t completely agree.