In today’s big story, we’re looking at why investors are eyeing an even better outcome for the market than a soft landing.

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For months, investors hoped the Fed’s tightening policy would culminate in a soft landing: lowering inflation while avoiding a full-blown recession.

The US is nearly there. Most experts believe the Fed will stick the landing as a stream of strong economic data continues to pour in.

But why settle for a soft landing when you can get it all? A so-called Goldilocks economy — where growth remains high while inflation and unemployment stay low — is a possibility some market watchers are floating, Business Insider’s Matthew Fox writes.

Cooling inflation and a strong jobs report means the Fed has the green light to get more aggressive with its rate cuts, Solita Marcelli, UBS’s CIO for global wealth management in the Americas, wrote Monday. The result would be the S&P 500 surging to 5,300 in 2024, finishing the year up 11%.

The scenario would be a boon for small-cap companies, many of which have floating-rate debt that would benefit from a flurry of cuts, Marcelli said.

Fed Chair Jerome Powell crushed investors’ dreams of a March rate cut last week, a point he seemed to reiterate on “60 Minutes.” The chance of a March rate cut went from 50% last week to about 16% on Monday, according to the CME FedWatch Tool.

Not to be deterred, the market still believes we’ll see the cuts it’s been dying for, and more than the central bank currently anticipates. It’s banking on the Fed being wrong, but ultimately seeing the error of its ways and accelerating cuts later this year.

The market has priced in six rate cuts for the year despite Powell already signaling the central bank was planning for just three. That suggests it foresees the Fed making a “policy error,” Bank of America analysts wrote in a note Friday.

To be sure, it feels a bit like we’re moving the goalposts.

Powell has been unwavering in trying to snuff out any chance of inflation roaring back. Banks collapsed because they didn’t manage their interest-rate risk, and that still didn’t stop Powell from raising rates another three times.

To suggest he’ll take such an aggressive approach to cutting rates after being so cautious seems a bit optimistic.

That’s not to say there’s no chance of the Fed exceeding its three-cut prediction this year. Harvard economist Kenneth Rogoff said last month the central bank could cut the rate 15 times… if a deep recession is triggered.

🔔 Before the opening bell: US futures edge up early Tuesday, while battered Chinese stocks soar on speculation Beijing will intervene to stop a recent rout.

2. How things could go wrong for the stock market. Despite being bullish on stocks, BofA equity strategist Savita Subramanian still outlined some big potential risks to investors. Weak demand and layoff news were some headwinds that gave her pause.

3. Gen Z is turning to influencers for help with its finances. A new survey found young people look to TikTok and YouTube over professional advisors for help with their money. A demand for long-form content and young people’s distrust of traditional players has led to the trend.

2. ChatGPT should be “much less lazy now,” Sam Altman says. In a post to X, Altman said a new update would fix ChatGPT’s refusal to complete some tasks. Users had been complaining the bot was slacking off and sometimes even issuing sassy responses.

3. A Salesforce exec suggested workers who didn’t hit a training goal could see financial repercussions. The company set a 2023 goal for all employees to achieve the “Ranger” status on its training platform. A leaked email showed the exec telling staff they better “get going” if they want their stock grant and bonus.

2. The US Treasury will send officials to China this week. The New York Times reported that an envoy of department officials is heading to China to help iron out economic tensions between the two countries.

3. EVs just aren’t working. A reliance upon high-priced, luxury EVs fell apart in recent months, and automakers are going back to the drawing board. And now it seems like hybrids are back in favor.

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Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, editor, in London. George Glover, reporter, in London.

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