Relentless U.S. stock rally faces Fed test
By David Randall
NEW YORK (Reuters) -A U.S. stocks rally faces a potential inflection point next week as the Federal Reserve is expected to deliver what may be the final rate hike of its most aggressive monetary policy tightening cycle in decades.
As the year began, many investors expected higher interest rates to bring on a recession that would further hurt stocks after 2022's sharp decline. Instead, the U.S. economy is proving resilient even as the Fed has made progress in its inflation fight — an ideal «Goldilocks scenario» that many believe will support equities. The S&P 500 is up nearly 19% year-to-date and closed on Thursday at 4,534.87, only about 6% below an all-time high reached in January 2022.
While investors broadly anticipate the central bank will raise rates by 25 basis points at its July 26 meeting, many also hope for signs that policymakers are more confident inflation will continue cooling, eliminating the need for the Fed to lift borrowing costs much further and supporting the thesis that has helped buoy stocks in recent weeks.
«A big part of the market is still macro driven and inflation is still in the driver's seat. What the Fed does and says next week will be critical,» said Cliff Corso, chief investment officer at Advisors Asset Management.
Expectations of a benign macroeconomic backdrop and an end to Fed tightening have pushed some analysts to revise views on how high stocks will go this year.
Jonathan Golub of Credit Suisse on Tuesday raised his year-end target on the S&P 500 to 4,700 from 4,050, citing a stronger economic outlook and expectations of strong technology and communication service earnings.
Fundstrat Global Advisors' Tom Lee raised his year-end target to 4,825 earlier this month,
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