The U.S. economy "not landing", what does it mean for U.S. stocks?

US Retail Sales in September and other economic data performed steadily, leading to the increasingly widespread consideration of the "no economic landing" scenario in market pricing. UBS and Bank of America believe that this situation will have a positive impact on the US stock market.

UBS analysts pointed out in their latest research report that the "no economic landing" scenario could push the S&P 500 index to reach 6,600 points next year, an increase of about 13% from the current level. Bank of America, on the other hand, believes that the economy will enter a recovery phase as early as next year, and investors may need to consider higher-risk small-cap stocks, which typically perform well during the recovery period.

From Defense to Offense? Bank of America: As Long as Inflation Doesn't Surge, "No Landing" is Beneficial for the Stock Market

"No economic landing" typically refers to the situation where the economy, after a period of high growth, does not experience the expected slowdown or recession, but continues to maintain its growth momentum. However, this may also result in ineffective control of inflation, limiting the Fed's room for interest rate cuts. On one hand, the stock market will benefit from a strong economic performance, but on the other hand, it will also be suppressed by the rise in risk-free interest rates.

Bank of America pointed out that as long as inflation does not surge again, the overall impact of "no economic landing" on the stock market is positive.

Analyst Justin Post from the bank stated in a recent report that despite the current challenges facing the US economy, thanks to the rate-cut cycle and robust economic indicators, the economy is expected to start recovering as early as the first half of 2025.

During economic downturns, investors tend to favor high-quality, large-cap, and low-risk companies. Bank of America believes that while investors should maintain a defensive stance and focus on quality stocks, they should also pay attention to value, small-cap, and high-risk stocks to capture opportunities during the future economic improvement period.

Harris Financial Group: Unlikely Inflation Rebound, Fixed-Income Investors May Return to the Stock Market

Jamie Cox, a strategist at Harris Financial Group, believes that the likelihood of an inflation rebound is low and is expected to continue to decline, allowing the Fed to gradually cut interest rates.

He stated that in the "no economic landing" scenario, even if long-term rates remain high, short-term rates may drop to around 3%, which is good news for the stock market as it will attract more funds into the market or prompt money market and bond traders to return to the stock market.

In this situation, high dividend value industries will also receive a boost, including consumer staples, utilities, and telecommunications, which may lead to market expansion once again. Cox also mentioned that small-cap stocks are likely to rise. He said:

"They won't go back to buying NVIDIA, and those funds won't be invested in tech stocks like Apple."

UBS: S&P May Hit 6,600 Points Next Year, US Election's Impact on the Market is Insignificant

UBS strategists predict that the "no economic landing" scenario may help propel the S&P 500 index to reach 6,600 points by the end of next year, an increase of about 13% from the current level. The bank's strategists stated in the report that the improved US macroeconomic outlook has enhanced their optimism towards the stock market, leading them to upgrade their rating on US stocks from neutral to attractiveUBS also pointed out that the slowdown in inflation provides a basis for the Fed to cut interest rates. The Fedwatch tool shows that the market expects a 72% probability of another 50 basis point rate cut by the end of the year.

Despite potential volatility in the market before the November election, UBS believes that these fluctuations will not affect the positive market fundamentals. The election will take place against the backdrop of Fed rate cuts and strong economic growth.

The U.S. presidential election is unlikely to disrupt the positive fundamentals. We expect increased volatility before the election, as neither party has a clear advantage in key swing states determining the election outcome. However, this election is taking place against a backdrop of Fed rate cuts, U.S. economic growth, and favorable long-term trends such as AI