According to a recent survey conducted by the CNBC CFO Council, there has been a notable change in the outlook of top financial executives at major US corporations. Despite persistent apprehension regarding inflation and the Federal Reserve's measures to tackle it, CFOs are exhibiting a growing sense of optimism about the overall state of the economy.
CFOs Believe the Fed Can Achieve a Soft Landing
The survey, conducted in the first quarter of 2024, found that nearly half (48%) of CFOs believe the Federal Reserve can orchestrate a "soft landing" for the US economy. This is a significant increase from just 16% who held this view in the first quarter of 2023. A soft landing is when the Federal Reserve slows inflation without causing a recession.
This newfound optimism comes despite lingering anxieties about inflation, which remains above the Fed's 2% target. The latest inflation data exceeded expectations, yet the stock market reacted positively, reaching record highs. This bullishness aligns with the views of CFOs, who consistently expect inflation to stay elevated until at least 2025.
While inflation concerns persist, the survey indicates growing approval for the Fed's actions. None of the surveyed CFOs rated the Fed's inflation-fighting efforts as "poor," and the percentage who view them as "good" increased from 39% to 55%. This suggests that CFOs see the Fed moving in the right direction, even if they have reservations about the pace or strength of those actions.
Market Outlooks and Corporate Investment Plans
The CNBC CFO Council Survey also illuminates market expectations and corporate investment plans. While the CME FedWatch tool suggests that traders anticipate a Fed rate cut as early as June, only 44% of CFOs believe a cut will occur before September. This indicates a more cautious stance among corporate leaders compared to market predictions.
Despite these cautious views on interest rates, CFOs remain bullish on the stock market. A significant majority (over 80%) expect the Dow Jones Industrial Average to continue climbing towards 40,000 points, driven by advancements in technology sectors. This economic confidence is likely influencing corporate cash allocation decisions.
Buybacks are flourishing, and deal-making activity is on the rise, even in the face of potential regulatory hurdles. Nearly a third of respondents identified strategic mergers and acquisitions (M&A) as their top spending priority for 2024, highlighting a continued focus on growth opportunities.
Consumer Demand: The Top External Threat
The survey also pinpoints consumer demand as the biggest external threat facing corporations, according to 37% of CFOs. This marks the most frequently cited risk factor over the past five quarters, suggesting that corporate leaders are keenly aware of potential changes in consumer behavior that could impact their bottom lines.
The Lingering Threat of Inflation
Overall economic resilience and market strength have surprised many, including the surveyed CFOs, who have consistently voiced concerns about inflation and economic uncertainties. However, the biggest risk for both the economy and markets is high inflation. If inflation remains stubbornly high, the Fed may be forced to take more aggressive measures to control it, potentially derailing the anticipated rate cuts and dampening economic growth.
In conclusion, the CFO Council Survey by CNBC provides valuable insights into the current economic climate and the outlook of corporate America.While concerns about inflation remain, there's increasing optimism about the overall health of the economy. However, the path forward hinges on the Fed's ability to manage inflation effectively without jeopardizing economic growth.