Investors confident that stock rally will endure to year end

US equities will climb through the rest of the year with the Federal Reserve’s aggressive interest-rate cut bolstering the chances of a soft landing for the economy, according to a survey of Bloomberg Terminal subscribers.

The rally will likely be too modest to take the S&P 500 Index above 6,000 before next year, with 44% of the 173 respondents to the latest Markets Live Pulse forecasting the benchmark will rise less than 6% from its Wednesday close and 19% expecting it to decline. The remaining 37% of those who took the survey expect a climb steeper than 6%.

An overwhelming majority expect a soft landing for the economy, with 75% forecasting that it will avoid a technical recession by the end of next year. A gain of 6% would roughly match the pace of the S&P 500’s advances so far this year.

Stocks and bonds fell after the central bank’s first rate reduction since 2020. The S&P 500 dropped to reverse a gain of as much as 1% after Fed Chair Jerome Powell cautioned against assuming big cuts would continue and signaled borrowing costs may need to remain higher over the long term than pre-pandemic norms. Treasuries sold off as Powell expressed confidence there wouldn’t be a recession.

The cautious expectations for stock gains from here underscore the uncertainty that still surrounds the Fed’s path — and the economy. Equities flip-flopped since a July peak, tumbling in early August and then again at the start of this month before recovering, as investors showed doubts the artificial intelligence boom can relentlessly drive profits higher. That theme looks to be lingering, with the survey showing a modest majority of 57% expect value stocks to outperform from here, while 43% see AI roaring back to take charge. 

Survey respondents leaned into Powell’s assessment of a healthy economy, with 49% of them saying the best move now would be to add to equities holdings. There were 31% who favored buying bonds and the remaining 20% said it was better to add to cash or gold. Gold retreated 0.4%, paring this year’s rally that took the precious metal to a record. 

The Fed’s first rate cut also clears the way for investors to focus on other potential headwinds for riskier assets, including the simmering tensions in the Middle East and the US elections set for Nov. 5. Survey respondents see a substantial impact on monetary policy as a likely outcome from the vote. Some 58% expect the Fed’s rate will be higher at the end of 2025 should Donald Trump win his way back to the White House, while the remaining 42% said the benchmark will be more elevated if Vice President Kamala Harris is victorious. 

Both candidates have laid out plans to boost spending, and neither have addressed concerns that the federal government may be on an unsustainable path as government debt balloons.

The MLIV Pulse survey was conducted among Bloomberg terminal clients immediately after the Fed decision by Bloomberg’s Markets Live team, which also runs the MLIV blog. Sign up for future surveys here.