Navigating the Economy: Soft Landing vs. No Landing

In the intricate dance of economic cycles, the terms "soft landing" and "no landing" represent divergent paths with profound implications for economies worldwide.

In this blog, we’re breaking down the distinction between these two scenarios to better understand their significance in shaping the economic landscape, as well as discussing ways to help protect yourself against market volatility.

Recent Economic News

Despite the U.S. economy taking another small win following the highest inflation level in more than 40 years, some investors feel that the economy isn’t out of the woods yet. According to Citi’s chief US economist, Andrew Hollenhorst, the soft-landing dream is over, as it’s just not showing in the data. 

Instead, the economy may be heading for a recession in the middle of 2024. This comes with the chance of the central banks achieving a “no landing” scenario. If that were to be the case, the economy would continue to grow, and inflation would remain high.

Soft Landing: A Smooth Descent to Stability

A soft landing embodies a scenario where an economy gracefully transitions from a phase of robust growth to a more sustainable pace without hurtling into a recession. 

Key characteristics include:

• Gradual Deceleration: Economic growth moderates slowly, preventing inflationary pressures from spiraling out of control.
• Stable Employment: Jobs remain intact, and unemployment rates stay relatively low, fostering consumer confidence and economic stability.
• Price Stability: Inflation is kept in check, helping ensure a conducive environment for sustainable growth without the threat of runaway price increases.
• Balanced Policies: Central banks and policymakers implement measures to balance stimulating growth and curbing inflation, promoting stability and resilience within the economy.

No Landing: Navigating Turbulent Skies

In contrast, a "no landing" scenario describes an economy that struggles to find its equilibrium, oscillating between periods of growth and contraction without achieving sustainable stability. 

Key features include:

• Volatility: Economic performance is marked by erratic fluctuations, characterized by periods of rapid expansion followed by sharp downturns, leading to heightened uncertainty and market volatility.

• Unemployment Concerns: Unemployment rates fluctuate widely, with job insecurity and underemployment prevalent among workers, undermining consumer confidence and spending patterns.
• Inflationary Pressures: Price levels experience volatility, with periods of both inflationary spikes and deflationary pressures complicating policymaking and exacerbating economic imbalances.
• Policy Challenges: Policymakers grapple with the complexities of managing a perpetually turbulent economy, facing difficulties implementing effective measures to stabilize growth and inflationary pressures.

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Implications and Considerations

A soft landing represents the more desirable outcome, offering stability and sustainable growth, as a "no landing" scenario poses significant challenges and risks:

• Economic Instability: Oscillating between boom and bust cycles can undermine investor confidence, hamper long-term investment decisions, and impede economic progress.
• Social Disruptions: Fluctuating employment prospects and income instability can lead to social unrest, exacerbating inequalities and widening the gap between socioeconomic classes.
• Policy Dilemmas: Policymakers face daunting challenges in navigating the complexities of a perpetually turbulent economy, requiring agile and coordinated policy responses to mitigate risks and stabilize economic conditions.

Protecting Yourself Against Market Volatility

Protecting yourself against potential market volatility is essential to managing your investments and financial well-being. While you cannot eliminate all market and economic risks, you can take several steps to help mitigate the impacts on your portfolio. Here are some strategies to consider:

1. Diversification: Diversification involves spreading your investments across different asset classes, such as stocks, bonds, real estate, and cash equivalents. Diversifying within asset classes (e.g., owning stocks from various sectors) can also help reduce risk. A well-diversified portfolio is less likely to experience sharp declines in value because not all investments will move in the same direction during market volatility.
2. Consider Dollar-Cost Averaging: Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy can help you buy more shares when prices are low and fewer shares when prices are high, helping reduce the impact of market volatility.
3. Use Stop-Loss Orders: A stop-loss order is a predetermined price at which you sell an investment to limit potential losses. This can help you avoid significant declines in asset value. However, be cautious with stop-loss orders, as they may result in selling assets at a loss during temporary market dips.
4. Hold Quality Investments: Focus on investing in high-quality assets, such as stocks of well-established companies with strong financials or bonds with solid credit ratings. Quality investments tend to be more resilient during market downturns.
5. Avoid Emotional Decision-Making: Emotional reactions to market volatility, such as panic selling during a downturn, can lead to poor investment decisions. Stick to your long-term investment plan and avoid impulsive moves based on fear. 

How Working with a Fiduciary Advisor Can Help

During periods of uncertainty, the guidance of financial advisors can be particularly essential. Fluctuations in the market, influenced by economic uncertainties, geopolitical events, and unforeseen crises, can unsettle investors, especially those nearing retirement.

Financial advisors leverage their experience to provide invaluable advice on navigating these turbulent times. They assist in making well-informed decisions, crafting diversified portfolios aligned with your risk tolerance, and devising strategies to help protect your investments during market downturns.

However, not all financial advisors are made equally. 

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Out of the 330,300 financial advisors in the U.S., there are approximately 15,114 fiduciary investment advisors. Any advisor registered with the SEC is legally required to abide by fiduciary duty and, as a result, must put clients’ interests ahead of their own. According to the SEC, fiduciaries are expected to exercise a duty of care and a duty of loyalty to clients, and as a result, are “held to the highest standard of conduct.”

Working with an advisor who abides by fiduciary duty gives you the assurance of knowing they’re legally obligated to put your interests first. While a fiduciary can still have conflicts of interest, knowing that they have a duty of trust and loyalty to you, the consumer, can give you some peace of mind. 

Partnering with a fiduciary advisor equips you with a trusted ally to help you navigate market volatility and stay focused on achieving your long-term financial objectives. Here at NJM Wealth Preservation Strategies, Nicolas J. McLeod, is a true fiduciary. Nic and his team operate by a code of ethics that proudly offers you knowledgeable, honest financial advice - as we believe you deserve nothing less. 

Final Thoughts

In the world of economics, the trajectories of soft landings and no landings represent starkly contrasting scenarios with far-reaching implications for economies and societies. While the former embodies stability, resilience, and sustainable growth, the latter entails volatility, uncertainty, and persistent challenges. 

By understanding these distinctions, policymakers, businesses, and individuals can better navigate the dynamics of economic cycles and strive for a smoother path toward prosperity and stability.

If you would like to learn more about volatility protection strategies and preserving your wealth for future generations, contact us here today to set up your complimentary consultation.