(Bloomberg) — U.S. stocks are set to rise for the rest of the year as the Federal Reserve’s aggressive interest rate cuts bolster the chances of a soft landing for the economy, according to a survey of Bloomberg Terminal subscribers.
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The rally will likely be too modest to push the S&P 500 above 6,000 before next year, with 44% of the 173 respondents to the latest Markets Live Pulse expecting the benchmark to rise less than 6% from its Wednesday close and 19% expecting it to fall. The remaining 37% of respondents expect a rise sharper than 6%.
An overwhelming majority expects a soft landing for the economy, with 75% expecting it to avoid a technical recession by the end of next year. A 6% gain would be roughly equal to the pace of the S&P 500’s gains so far this year.
Stocks and bonds fell after the central bank’s first rate cut since 2020. The S&P 500 fell to reverse a gain of as much as 1% after Fed Chair Jerome Powell warned against assuming deep cuts would continue and noted that borrowing costs may need to remain higher over the long term than pre-pandemic norms. Treasuries sold off as Powell expressed confidence there would be no recession.
Cautious expectations for stock gains from here underscore the uncertainty still surrounding the path of the Fed and the economy. Stocks have endured wild swings since a peak in July, falling in early August and then again earlier this month before recovering as investors showed doubt that the rise of artificial intelligence can relentlessly drive earnings higher. That theme appears to persist, as the survey shows a modest majority of 57% expect value stocks to outperform from here, while 43% think AI will once again take over.
Respondents leaned toward Powell’s assessment of a healthy economy, with 49% saying the best move now would be to increase stock holdings. Thirty-one percent favored bond purchases and the remaining 20% said it was better to increase cash or gold. Gold fell 0.4%, paring this year’s rally that took the precious metal to a record high.
The Fed’s first rate cut also paves the way for investors to focus on other potential headwinds for riskier assets, including simmering tensions in the Middle East and the US election scheduled for November 5. Respondents believe the vote is likely to have a substantial impact on monetary policy. About 58% expect the Fed rate to be higher by the end of 2025 if Donald Trump returns to the White House, while the remaining 42% said the benchmark rate will be higher if Vice President Kamala Harris emerges victorious.
Both candidates have laid out plans to increase spending, and neither has addressed concerns that the federal government may be on an unsustainable path as government debt rises.
The MLIV Pulse survey was conducted among Bloomberg terminal clients immediately after the Fed decision by Bloomberg’s Markets Live team, which also manages the MLIV blog. Sign up for future surveys here.
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