Wall Street bulls firmly believe that "the bull market is in full swing": even if there is no interest rate cut this year, the US stock market is expected to continue to surge ahead

According to the financial news app Zhitong Finance, despite the market's diminishing expectations for a rate cut by the Federal Reserve, some bullish Wall Street forces believe that even if the Fed does not cut rates this year, the US stock market will still achieve a bull market with repeated record highs. In the eyes of these optimistic bulls, the main reason is that the trend of economic growth will support the US stock market, coupled with the overall strong profit data of the seven major US tech giants expected to boost stock prices.

Resilient US economic growth data may provide enough support for US stocks to resume their upward trend of hitting record highs, even if there is a possibility of completely abandoning the bet on a Fed rate cut this year.

Furthermore, data shows that although expectations of a Fed rate cut under inflation pressure sharply cooled, the benchmark index of US stocks - the S&P 500 Index - achieved its best weekly performance since November last year last week, driven by strong performance from tech giants like Google and Microsoft, pushing the index back near its historical high set in March.

However, investors are facing a dilemma: whether the recent soft pullback is just a temporary phenomenon, or the continuously cooling expectations of Fed policy easing may once again drag down the market?

Some investors believe that the answer lies in the market script of the 1990s, where despite interest rates hovering near current levels for many years, the US stock market value more than tripled. Back then, strong economic growth data provided a platform for the stock market to show a rising trend, and although the global economic outlook is more uncertain now, there is still enough momentum to drive the stock market forward.

Fund manager Zehrid Osmani from investment firm Martin Currie said in a media interview, "You have to assess why the number of Fed rate cuts this year may be significantly less than expected." " If this is related to the economy being healthier than expected, then after the typical knee-jerk reaction in volatility, this may support a stock market rally."

Before the significant rebound in US stocks in the past week, the stock market had been in a period of pullback or consolidation throughout April. Earlier expectations of over 150 basis points of Fed rate cuts by the end of 2023 and the beginning of this year had driven record gains in US and global stocks.

Interest rate futures traders originally expected the Fed to cut rates at least 6 times this year, by 25 basis points each time. However, with US CPI and PCE data showing a flattening of the US inflation curve, and strong non-farm payroll data suggesting that inflation may even continue to rise, traders' general expectations have now dropped to only one rate cut in the second half of the year. This has raised concerns that the Fed's long-term restrictive monetary policy could put immense pressure on the US economy and corporate profit potential, potentially leading to a recession or even "stagflation".Global geopolitical risks are rising, and the uncertainty surrounding the 2024 global elections, including those in the United States, has led to a surge in stock market volatility. This has driven traders' hedging demand rather than bullish sentiment to guard against more severe market downturns.

Historical data shows that a pullback before new highs in the US stock market is a normal sign

Nevertheless, confidence in global economic growth has strengthened this year, mainly supported by the resilience of the US economy and recent signs of a rebound in China. Similarly, the International Monetary Fund (IMF) raised its expectations for global economic expansion this month. A survey by the institution indicates that economic growth in another major economy, the Eurozone, is expected to accelerate starting from 2025.

David Mazza, CEO of Roundhill Investments, stated that despite recent economic data reflecting a slowdown in US economic growth in the last quarter, caution should be exercised with these data as they somewhat mask the originally robust demand.

"In general, I still believe that we may not need rate cuts to restore a more optimistic sentiment, but I do think that achieving rate cuts will be more challenging," Mazza said.

Concerns about an economic recession are easing - the number of news reports mentioning "recession" has decreased this year.

After reaching historical highs in the first quarter, the S&P 500 index's short-term pullback is seen as a positive sign. Institutional statistics show that between 1991 and 1998, the index experienced multiple declines of 5% before new significant rebounds, but no adjustments of 10% or more occurred.

However, a notable drawback of this comparison is that the concentration of market capitalization in the S&P 500 index is much higher now than in the 1990s. Currently, the top five stocks by market value are Microsoft (MSFT.US), Apple (AAPL.US), Nvidia (NVDA.US), Amazon (AMZN.US), and Meta Platforms (META.US), all from the technology sector. These high-weighted stocks account for nearly a quarter of the S&P 500 index's market value, making the index susceptible to the drastic fluctuations of these tech giants. However, in recent quarters, the S&P 500 index has repeatedly hit new highs driven by the strong performance of these tech giants.

An analysis by Bank of America shows that since 1929, the S&P 500 index has experienced an average of three pullbacks of 5% or more each year. Although US stocks have been mostly rising in recent months, such declines are not uncommonHistorically, the US stock market often experiences a significant decline after a strong start to the year, followed by a self-adjustment and continued upward trend. A study by Truist Advisor Services, a trust advisory service company, shows that when the S&P 500 Index rises by 10% or more in the first quarter, there is an average maximum decline of 11%. However, since 1950, out of 11 such events, the index has ended the year with a rise in 10 instances.

However, there are other important factors that bode well for the US stock market.

An analysis by BMO Capital Markets shows that the return rate of the S&P 500 Index is closely related to higher yields, a surprising finding for analysts. The analysis indicates that since 1990, when the 10-year US Treasury yield is above 6%, the index has an average annualized growth rate of nearly 15%, while when the yield is below 4%, the index's annual return rate is around 7.7%.

Brian Belski, Chief Investment Strategist at BMO, wrote in a report to clients: "This makes sense to us because lower rates may reflect weak US economic growth, and vice versa."

The US stock market performs better under a rate hike mechanism - a BMO analysis report states that rising rates indicate a stronger economy

Statistics show that in the past week, as the prospects for US policy easing have cooled across the board, the 10-year US Treasury yield has reached 4.74%, the highest point in the year.

Strong corporate earnings data under the leadership of tech giants is expected to drive the long-term bullish trend of US stocks

Preliminary results from the current earnings season show that even against the backdrop of high benchmark interest rates in the US, about 81% of S&P 500 Index component companies have outperformed analysts' expectations. Data compiled by Bloomberg Intelligence shows that the overall earnings per share of S&P 500 Index component companies in the first quarter is expected to increase by 4.7% year-on-year, compared to the general expectation of 3.8% before the earnings season.

From the perspective of the DCF model, although the 10-year US Treasury yield, which corresponds to the denominator r indicator in the DCF valuation model, has stabilized at a high level for the year after the cooling of the Fed rate cut expectations, if the cash flow expectations on the numerator side can continue to improve, it can significantly expand the pricing range of stocks and other risk assets. **The cash flow expectations on the numerator side are largely based on the performance of the earnings season, so upward revisions in corporate profits are crucial for the pricing trend of stocks and other risk assets. Citigroup's data on upward revisions in US corporate earnings show that analysts have been continuously revising upward their profit expectations for US companies recentlyBloomberg Intelligence compiled data shows that analysts generally expect the overall earnings per share of S&P 500 companies to grow by 8% in 2024 after last year's sluggish growth, and are expected to increase significantly by 14% in 2025, mainly driven by the strong performance of the "Magnificent 7" in the US stock market.

The "Magnificent 7" includes: Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta Platforms. Global investors have been flocking to these seven tech giants since the first quarter of 2023 and 2024, mainly because they are betting on the best position to expand revenue using artificial intelligence technology due to the huge market size and financial strength of these tech giants.

Andrew Slimmon, portfolio manager at Morgan Stanley's investment management department, said that even if the Fed's rate cut in 2024 is zero, profit expectations for US companies next year may still increase.

In an interview earlier this month, he said that the market's relatively optimistic outlook on the performance of US tech giants "confirms the potential upside of the stock market."

Michael Wilson, Chief Equity Strategist at Morgan Stanley and a well-known Wall Street bear, recently released a report stating that the overall earnings per share trend of US companies - that is, the overall earnings per share of S&P 500 index component companies will improve. This well-known Wall Street strategist said that the pressure driving further gains in the US stock market will be corporate profitability, not interest rate expectations.

Michael Wilson's stock strategy team at Morgan Stanley stated that with the strengthening of the US economy, it is expected that the profit growth rate of US companies in 2024 and 2025 will significantly improve. This is also a rare optimistic outlook on earnings per share by the "big bear" Michael Wilson since 2023. Regarding the latest outlook on US earnings expectations, Wilson emphasized that the rebound data from the US business activity survey, supported by new order data, "confirms the sustained growth trend of future profits."

In terms of the general expectations of Wall Street analysts, analysts expect US companies to achieve a stronger year-on-year growth rate in earnings per share in 2024 - after a less than 1% year-on-year growth rate last year, this year is expected to achieve an increase of about 8% year-on-yearx-oss-process=image/format,jpg/quality,Q_90)

Ohsung Kwon, a strategist at Bank of America Corp., said that even if the Federal Reserve does not cut interest rates, the prosperous U.S. economy will continue to support the stock market. He pointed out that the biggest risk facing this premise is if the economy slows down while inflation remains relatively high. "If inflation remains sticky due to economic momentum, it may not be unfavorable for the stock market," Kwon said. "But stagflation is."

Goldman Sachs' strategy team on Wall Street expects that the "Big Seven Tech Giants" including Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta Platforms will continue to show strong growth in 2024, thereby driving the rise of the U.S. stock market.

The Goldman Sachs strategy team stated that the Big Seven Tech Giants accounted for 11% of the total sales of the S&P 500 Index in 2023, and 18% of the total profits. At the same time, the institution expects the earnings per share of the Big Seven Tech Giants to grow by at least 20% in 2024. In terms of Compound Annual Growth Rate (CAGR), from 2013 to 2019, the overall sales CAGR of the Big Seven Tech Giants was as high as 15%, while the CAGR of other stocks was 2%. This gap narrowed in 2021 to 2022. However, Goldman Sachs strategists predict that from 2023 to 2025, the compound annual growth rate of total sales of the Big Seven Tech Giants will reach 11%, while the compound annual growth rate of other components of the S&P 500 Index will only be 3%.

Michael Hartnett, a strategist at Bank of America known as the "most accurate strategist on Wall Street," recently pointed out that before concerns about rising real interest rates and economic recession, the U.S. stock market may continue to rely on a few large stocks to guide the market direction. Hartnett pointed out that the U.S. tech giants are expected to continue leading the U.S. stock market to new highs, meaning that the U.S. stock market will continue to depend on these high-weighted stocks of the Big Seven Tech Giants to determine the market direction until the real yield on the 10-year Treasury reaches around 3%, or until higher yields combined with larger credit spreads pose a threat to economic recession.

Wedbush, a well-known investment firm on Wall Street, stated that the profit environment for U.S. tech companies still looks strong, especially considering the enthusiasm of enterprises and consumers for artificial intelligence, which has driven the soaring trend of tech stocks over the past year. Wedbush stated that a strong U.S. earnings season may be a major positive catalyst for tech stocks in the near term, and the institution predicts that by the end of 2024, the Nasdaq 100 Index, which includes many U.S. tech stocks, is expected to continue hitting new highsIn terms of the expected performance of the US stock benchmark index - the S&P 500 Index, Tom Lee, a well-known bull on Wall Street and co-founder and research director of the US investment firm Fundstrat Global Advisors, recently stated that the weeks-long sell-off in the US stock market that began at the beginning of the month is about to end.

Known as the "Wall Street Oracle," Tom Lee stated that the decline in the US stock market is mainly driven by investors' dual risk aversion reactions to recent inflationary pressures and escalating geopolitical risks in the Middle East. However, Tom Lee expects these risks to eventually dissipate, paving the way for a resumption of the upward trend in the US stock market and reaching new highs before the end of the year. Tom Lee expects the S&P 500 Index to reach 5700 points this year, ranking as the most optimistic S&P 500 Index forecast on Wall Street, higher than the 5500-point expectations given by Bernstein, Wells Fargo, and Oppenheimer.

It is understood that Lee was one of the few bullish forces on Wall Street last year to successfully predict the bullish trend of the S&P 500 Index in the second half of the year, and he accurately predicted the upward trend of the US stock market in 2023 at the end of 2022. Lee predicted at the end of 2022 that the S&P 500 Index would surge by over 20% to above 4750 points in 2023, and the index unexpectedly soared in 2023, ending up just over thirty points away from Lee's target