Why stocks could still rise even as rate cut hopes fade
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Investors are pushing back bets on when the Federal Reserve will begin cutting interest rates, but many Wall Street strategists believe this won't alter stocks' charge higher in 2024. After a key inflation report showed an unexpected uptick in consumer prices last month on Wednesday, investors are now pricing in just two interest rate cuts in 2024, down from a peak of seven in early January. Despite the market's moves in reaction to the latest inflation data on Wednesday, stocks have largely been resilient with regard to moves in interest rate expectations this year, with the S&P up about 8% to date — so a shift in market expectations for Fed policy is unlikely to derail the stock market rally. Wells Fargo chief investment strategist Christopher Harvey, who boosted his year-end target for the S&P 500 (^GSPC) to a Street-high 5,535 on Monday, told Yahoo Finance the most important part of the Fed discussion remains that easing is still in the pipeline. Market bulls have also been encouraged by limited signs that high interest rates are slowing corporate earnings or US economic growth. Consensus estimates are for earnings growth to pick up throughout the year. An increasing number of economists see the improving economic growth outlook creating an elevated chance that the Fed could cut rates by less than previously thought, if it cuts at all. This is often referred to as a 'no landing scenario,' where economic growth accelerates while inflation's path downward slows. Overall, this isn't all bad for the major indexes given it would come with a positive economic growth backdrop, why strategists believe earnings growth could broaden beyond just technology later this year. It could, however, create further bifurcation between large- and small-cap stocks.