COVER STORY
There are roughly half as many public companies as there were two decades ago and many went private or were merged via extensive financial leverage .
At present , the consensus calls for inflation to continue declining , for no recession to surface , for earnings to grow 8 % to 10 % and for the Fed to cut interest rates , notes Rob Almeida , global investment strategist at MFS Investment Management . While it ’ s quite possible that one , two or even three of these things might happen , all four occurring simultaneously seems like a superfecta .
What Recession ? Fed up with recession predictions that fail to materialize , Wall Street conventional wisdom has settled on the idea that the economy will enjoy a soft landing . Some , like Charles Schwab chief investment strategist Liz Ann Sonders and economist Ed Yardeni , have posited that the traditional business cycles have been shifted this time around by a series of rolling recessions as sectors from technology to durable goods and travel struggle in fits and starts .
Consumer strength has been fueled by successive fiscal stimulus packages from the Trump and Biden administrations , and it remains buoyant . Yardeni has noted that many of a wave of baby boomers recently reaching retirement are now taking their required minimum distributions from fat 401 ( k ) accounts , and this is keeping the economy humming in ways it didn ’ t in the past .
Many retirees may be doing fairly well , though higher interest rates and inflation are frustrating younger Americans looking to buy their first homes . Still , on the spending front , hourly workers are benefiting from labor shortages , according to Kristina Hooper , chief global market strategist at Invesco . These workers can easily pick up extra part-time income from employers who can ’ t fill full-time positions . Some economists think expanded employment opportunities explain the surprisingly strong retail sales this past holiday season .
But beneath the surface , all the rosy statistics mask some troubling trends , many of them traced to debt . There are roughly half as many public companies as there were two decades ago and many went private or were merged via extensive financial leverage .
From Spirit Airlines , which says it isn ’ t contemplating bankruptcy , to Sports Illustrated , to trucking businesses like 91-yearold Yellow Freight and eight-year-old Convoy ( a startup backed by Bill Gates and Jeff Bezos ), more companies have encountered financial woes , including default , in the last year than most Americans realize . “ In 2023 , the number of companies in the U . S . with $ 50 million [ or more ] in debt that filed for bankruptcy was about 200 , similar to what it was in the pandemic and in 2008 ,” Almeida observes .
Both the 2008 and 2020 economies were extraordinary by most measures . Last year differed only in the aggressive Federal Reserve tightening cycle , which many perceived as a return to economic normalcy . But amid the rate increases , most businesses that recently failed “ collapsed under the weight of their own debt ” and “ presumably ” falling revenues , Almeida says .
Given the economy ’ s ability to upset expectations , it ’ s reasonable to ask if major structural changes are taking place . Almeida notes that interest rates have existed for 5,000 years , and yet in the last 50 they ’ ve never been higher — or lower .
Monetary policy has been very effective at influencing financial markets , Hooper says , if far less powerful in its impact on the economy . Since the Great Financial Crisis , it has acted as the primary driver of the markets , so much so that Wall Street savants often talk about little else .
When supply-chain bottlenecks and labor shortages triggered a surge in prices in 2021 , some observers
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