A trader works on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Every time the stock market has risen from a low in 2022, it is heading back down. High hopes among investors that the worst is over have turned into head-scratchers amid the highest interest rates in 15 years. The current year-end decline in stocks is just the latest example, and the sell-off isn’t over yet.
The latest damage to Dow Jones Industrial Average will get worse before it gets better, and even if the Fed’s battle with inflation leads to success, it will come at the price of a hard landing for the economy next year, according to a new survey of CFOs by CNBC.
The results of the latest quarterly survey of CFOs are not a surprise. Throughout 2022, conversations with individual CFO councilors have more often than not tended towards the economy heading for a hard landing. At the most recent annual summit in Washington, DC on November 30, polls in the room showed that the majority of CFOs remained of this view.
That CNBC CFO Council The Q4 2022 survey is a sample of the current outlook among top economies. It was conducted among 23 finance managers in larger organizations between 30 November and 20 December.
Here are a few of the details.
Recession is coming
It has been noted that no recession has been more predicted than the one that still hasn’t hit the economy. Include CFOs in this camp of prognosticators. More than 80% of respondents to the Q4 survey expect a recession in 2023. That percentage has increased quarter over quarter as more CFOs have pushed past forecasts that the economy had already entered a recession. CFOs disagree on the timing, with equal percentages (43%) saying the recession will hit in the first half or second half of the year.
Whenever a recession hits, the timing is less important than the survey shows that less than 10% of CFOs believe a soft landing — the idea that the Federal Reserve can cool economic conditions, bring down inflation and raise unemployment without lowering the economy – is possible.
More Dow selling
The CFO’s view of recession spells more pain for a stock market that ends the year with another volatile decline. More than half of the CFOs surveyed (56%) expect the Dow Jones Industrial Average to fall back below 30,000 again before ever reaching 40,000 for the first time, and that’s close to triple the number of CFOs (21% ), who believe that the worst is in store for the market or have chosen not to make a call on shares in the survey.
But the outlook is not all bleak. In a few key areas of the economy and markets, CFOs believe the worst is in. For example, with inflation.
Inflation has peaked
While it remains the top external risk factor cited by CFOs—and cited by several CFOs in Q4—nearly two-thirds of respondents now say inflation has peaked. And CFOs believe that despite the costs to the economy and the stock market, the Fed is doing a better job. More than half of CFOs now rate the Fed’s handling of inflation as “good” or “excellent,” a significant improvement. CFOs who described the Fed’s efforts to control inflation as poor fell from about a quarter of respondents in Q3 to less than 10% who hold this view now.
Political risks will not flood the market
One reason why inflation was cited by several CFOs as the biggest external risk factor facing their companies: another risk fell 10% quarter over quarter, the risk of overregulation. The midterm elections and divided government may be responsible for this diminished fear.
As for other key political risks on the horizon in 2023, CFOs believe the headlines will be worse than the reality. A large majority of CFOs (over 80%) say a government shutdown is unlikely in 2023, and they also think it’s unlikely—more than half say it’s “very unlikely”—that Congress would fail to raise the debt ceiling . owned by over 90% of respondents. That echoes the view of Kevin Brady, the outgoing top Republican on the House Ways and Means Committee, who told finance chiefs at the recent CNBC CFO Council Annual Summit in Washington, DC that it was “economic fear-mongering”.
“The bottom line is our debt will be paid on time. … I don’t expect a 2011 or even 2018,” Brady said.
Businesses will still use and hire
As economic conditions and the stock market weakened this year, one set of findings that has been consistent in the CFO survey is relatively stable spending and investment plans. This is still the case in the 4th quarter.
Less than a quarter of CFOs expect their company’s expenses and headcount to be reduced in 2023. That’s not to say that companies aren’t being more cautious. An equal percentage (about 40%) of CFOs say their expenses and staffing will remain the same next year as those who expect it to increase.