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Dow Jones falls below 30,000, little chance of soft landing for economy: CFOs

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A trader works on the floor of the New York Stock Exchange.

Lucas Jackson | Reuters

Every time the stock market hits a low in 2022, it goes back down. High hopes among investors that the worst was yet to come have been turned into lies amid the highest interest rates in 15 years. The stock’s current year-end slump is just the latest example, and the selling isn’t over yet.

The latest damage to Dow Jones Industrial Average It’s going to get worse before it gets better, and even if the Fed’s battle with inflation is leading to success, that will come at the price of a hard landing for the economy next year, according to a new survey of chief financial officers conducted by CNBC.

The results of the latest quarterly CFOs survey come as no surprise. Throughout 2022, conversations with individual members of the CFO Board have mostly tended toward the view that the economy is headed for a hard landing. At the recent annual meeting in Washington, DC on Nov. 30, a poll of the room showed that most CFOs held to that view.

The CNBC CFO Council Q4 2022 survey is a snapshot of the current outlook among top finance executives. It was conducted among 23 chief financial officers of large organizations between November 30th and December 20th.

Here are some of the details.

The recession is coming

It has been observed that no recession has been more predicted than one that has not yet hit the economy. Include CFOs in this predictors field. More than 80% of respondents to the Q4 survey expect a recession in 2023. That percentage has increased quarter-on-quarter as more CFOs have rejected earlier predictions that the economy had already entered a recession. CFOs are split on time, with equal percentages (43%) saying the recession will hit in the first half or second of the year.

Whenever a recession strikes, the timing is less important than the survey finding that less than 10% of CFOs think a soft landing – the idea that the Federal Reserve can cool economic conditions, reduce inflation and increase unemployment without sink the economy – it is possible.

More Dow Selling

The CFO’s views on the recession spell more pain for a stock market that is ending the year with another volatile drop in value. More than half of CFOs (56%) surveyed expect the Dow Jones Industrial Average to fall below 30,000 again before reaching 40,000 for the first time, and that’s almost triple the number of CFOs (21%) who think the worst is in the market or chose not to make a stock purchase in the survey.

But the prospects are not all bleak. In some key areas for the economy and markets, CFOs actually think the worst is happening. For example, with inflation.

Inflation has peaked

While it remains the top external risk factor cited by CFOs – and cited by more CFOs in the fourth quarter – nearly two-thirds of respondents now say inflation has peaked. And CFOs believe that, despite the cost 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 big improvement. CFOs who described the Fed’s efforts to control inflation as poor have dropped from roughly a quarter of respondents in the third quarter to less than 10% who now hold that view.

Political risks will not shake the market

One reason inflation was cited by more CFOs as the biggest external risk factor their businesses face: Another risk was down 10% quarter-on-quarter, the risk of over-regulation. Midterm elections and divided government may account for this diminished fear.

As for other major political risks on the horizon in 2023, CFOs believe the headlines will be worse than reality. The vast majority of CFOs (over 80%) say a government shutdown is unlikely in 2023, and they also think it is unlikely – more than half say it is “very unlikely” – that Congress will fail to raise the debt ceiling, a view by more than 90% of respondents. This echoes the view offered by Kevin Brady, the outgoing top Republican on the House Ways and Means Committee, who told finance directors at CNBC’s recent CFO Council Annual Summit in Washington, DC, that it was “incitement to economic fear.”

“The bottom line is that our debt will be paid on time. … I don’t see 2011 or even 2018,” Brady said.

Companies will still spend and hire

As the economic situation and the stock market weakened this year, one set of findings that has been consistent across the CFO survey is relatively stable spending and investment plans. This remains the case in the fourth quarter.

Less than a quarter of CFOs expect their companies’ spending and headcount to be reduced in 2023. That’s not to say companies aren’t being more cautious. An equal percentage (approximately 40%) of CFOs say their spending and headcount will stay the same over the next year as those who expect them to increase.