crashbandicoot1downloadpc| Deutsche Bank: Stock market can thrive even if the Fed does not cut interest rates

Deutsche Bank believes that even if the Federal Reserve does not cut interest rates this year, the S & P 500 index can continue to soar and hit another all-time high.

Binky Chadha, the bank's chief U.S. equities and global strategist, said in an interview that as long as the economy and corporate earnings are growing, stocks can remain strong even in the face of a longer period of high interest rates. Chadha last week raised its year-end forecast for the S & P 500 to 5500, which is about 4% higher than Thursday's close.

This is a reassuring message for investors. U.S. stocks fell on Thursday as data showed U.S. corporate activity accelerated, leading traders to delay an expected Fed rate cut until the end of the year. Although the rise in Nvidia's share price tempered the broader market's decline, the S & P 500 fell below the 5300 mark, its worst day since late April.

But Chadha said investors have been intimidated by the prospect of high interest rates only for a while, and there is no reason to think that trend will change.crashbandicoot1downloadpcHistorically, he said, there have been a 3% to 5% correction every two to three months.

"The experience of the past two years is that when interest rates suddenly rise, the stock market will sell off, and then if interest rates stabilize, the stock market will immediately rebound," he said.

As inflation remains stubborn and officials have signaled there is no rush to cut interest rates, traders have recalibrated their expectations for how much the Fed will relax. The market has only fully absorbed one 25-basis point interest rate cut this year, compared with last December predicting a maximum of seven interest rates in 2024.

Even so, the S & P 500 is still up about 10% so far this year and has 24 trading days set a record close, meaning about a quarter of trading days hit a new high.

The strategist pointed out that a strong profit cycle, economic expansion and easing price pressures make him optimistic. Although the consensus on predicting a U.S. recession has changed, he pointed out that forecasters have underestimated economic growth for seven consecutive quarters. At the same time, he said that inflation mainly reflects factors such as seasonality and the stickiness of rent measures.

Chadha said that while valuations look "fairly full," they are not too high on historical measures.

"Is the market pricing too high? We don't think so,"he said. "What I would say is that we see upside risks to economic growth relative to the macroeconomic consensus, and we see the risks to inflation as basically downside."