Wall Street strategists predict bull market path for stocks after Powell’s ‘risk-management’ rate cut

Stocks keep hitting record highs — and the Federal Reserve just gave them another reason to climb.

The central bank cut rates by a quarter point on Wednesday and signaled two more reductions are likely by year-end, with Fed Chair Jerome Powell calling it a “risk-management” move to cushion a softening labor market. That backdrop has only reinforced Wall Street’s conviction that the rally isn’t over.

“Fed rate cuts near market highs have historically led to further gains, though not in a linear fashion,” Keith Lerner, chief market strategist at Truist, wrote.

Lerner noted that in his research going back to the 1980s, when the Fed has cut rates with the S&P 500 (^GSPC) within 3% of record highs, the index has gone on to post gains 90% of the time over the following year.

“Fed policy is just one input,” he said. “[But] historically, equities have responded favorably when rate cuts occur outside of recessions, especially when earnings remain resilient.”

That historical playbook helps explain why strategists at Wells Fargo, Barclays, and Deutsche Bank, among others, have all lifted their S&P 500 targets in recent days and weeks, pointing to resilient earnings, the AI investment cycle, and easier Fed policy as the backbone of the market’s next leg higher.

Bank of America’s latest fund manager survey also showed equity allocations at seven-month highs, underscoring how optimism is reflected in positioning.

Still, some strategists warn the near-term bar is higher, with volatility likely. Citi’s Scott Chronert said the index already sits at his 6,600 year-end target, calling equities “fairly valued” and flagging the upcoming Q3 earnings season as the next litmus test.

Fundstrat’s Mark Newton echoed that caution, calling the near-term risk-reward for the S&P 500 “unappealing” and pointing to weakening breadth over the past two weeks. He also flagged signs of “exhaustion” in the Nasdaq 100, suggesting tech may be due for a near-term sell-off before a larger move higher.

Evercore ISI’s Julian Emanuel made a similar point, saying volatility in tech “has nowhere to go but up” in the short term, even as he still sees the AI-driven bull market intact with a path toward 7,750 by 2026.

That leaves investors navigating what JPMorgan has dubbed a “jobless expansion.” The bet is that weaker employment will keep the Fed easing, lower rates will support valuations, and slower wage growth will help corporate profit margins. As Goldman Sachs’ David Kostin put it, “A cooling labor market is a tailwind to corporate profits, all else equal.”