US stocks are flirting with record highs as investors eye further rate cuts from the Fed

US stock markets are inching closer to record highs as the prospect of further rate cuts and the artificial intelligence boom continue to drive investor flows.

The tech-heavy Nasdaq and the S&P 500 are each up about 24 percent since the start of the year, with the latter hitting a record high this week, despite a toxic cocktail of global conflict that has held back economic growth in Europe and China, and recent oil price volatility.

The Dow Jones is up just under 15 percent this year after closing at record highs in four of the last five trading sessions.

US stocks have been boosted by a bigger-than-expected 50 basis point rate cut from the Federal Reserve in September, as well as strong gains for AI-linked names like Nvidia and TSMC.

The FTSE 100, which is much less exposed to technology, is up about 8.3 percent since the start of the year, while the MSCI World Index is up just under 20 percent.

Richard Hunter, head of markets at Interactive Investor, noted that the US consumer is also in “poor health”, following better-than-expected retail sales and lower-than-expected unemployment claims published this week.

He said: ‘The perfect scenario of a soft economic landing is becoming increasingly possible, which in turn gives the Federal Reserve more freedom of choice in its interest rate deliberations.’

The Dow Jones, S&P 500 and Nasdaq were at 43,239.05, 5,841.47 and 18,373.61 points respectively on Friday morning. This compares to the respective all-time intraday highs of 43,289.76, 5,815.03, and 18,671.07.

In a note on Friday, analysts at UBS, which “remains bullish on the broader tech industry, especially the AI-linked segment,” dismissed investor concerns that stronger-than-expected U.S. economic data would lead the Fed to make further interest rate cuts hold off.

They said: ‘We still expect a 50 basis point cut by the end of this year, and a further 100 basis points in 2025.’

This would bring the Fed’s target to 4.25 to 4.5 percent by the end of 2024, and to 3.75 to 4 percent by the end of 2025.

UBS added: ‘Overall, with inflation moderating, spending remaining healthy and the labor market stable, we expect the Fed to continue cutting rates in November and December, with further easing in each quarter in 2025 .We like US stocks. ‘

Interactive Investor’s Hunt said: ‘The US markets are in a good situation at the moment.

‘The central driver was the increasing possibility that the Federal Reserve will have been able to engineer the fabled ‘soft landing’ for the economy, thus avoiding the situation where higher interest rates and slowing growth could inevitably lead to a recession.

‘Inevitably there is some concern that the market could overheat given higher valuations, with corrections inevitably happening as part of the investment story. However, at this point, conditions appear favorable for further potential gains.”