More and more data support the view that the U.S. economy is not heading for a hard landing! Will the U.S. stock market continue to play music and dance?

As Wall Street engages in a tug-of-war over the outlook for the US economy, few are predicting any possibility this year other than a soft landing or a recession. However, over the past month, a series of strong macroeconomic data has brought a third possibility - "no landing" - to the table. This scenario implies that the economic data remains strong, boosting growth in the market, but also preventing the Federal Reserve from significantly cutting interest rates.

For investors, this means they may need to continue betting on stocks, focusing on high dividend yield stocks.

Soft landing? Hard landing? More like no landing

Institutions such as Bank of America and UBS have recently pointed out the increasing possibility of a "no landing" outcome. In this case, US economic growth will exceed expectations, inflation will continue to stay above the Federal Reserve's 2% target, and interest rates will also remain at a high level.

Think about those recent positive data points that have surprised investors. September's non-farm payroll data showed strong performance, with employers adding a staggering 254,000 jobs, bringing the unemployment rate down to 4.1%.

Meanwhile, Bank of America stated that recent revisions to GDP and gross domestic product have been "extremely positive". Last week's strong retail data showed that consumer spending remained strong, with core retail sales actually growing by 0.4%, compared to 0.1% in August and higher than the expected 0.3%.

In a report, Bank of America summarized, "This reduces market concerns about downside risks and increases concerns about upside risks."

The economic re-acceleration may make investors uneasy, shattering their hopes for a rapid rate cut by the Federal Reserve. With the inflation rate rising to 2.4% in September, the probability of a 50 basis point rate cut in November by the Federal Reserve is extremely low, with investors believing that a 25 basis point cut in November is the most likely move.

Bank of America believes that as long as inflation does not rise again, the "no landing" scenario is favorable for US stocks.

Will US stocks continue to be boosted?

Jamie Cox of Harris Financial Group believes that the likelihood of an inflation rebound is small. In his view, the inflation rate will continue to decline, allowing the Federal Reserve to gradually lower interest rates. This managing partner stated that coupled with strong GDP growth, investors should readjust their expectations for the magnitude of these rate cuts.

Cox mentioned that this means that in the "no landing" scenario, short-term rates will fall to around 3%, even as long-term rates remain high.

He said, "This is good news for stocks as it will prompt money market investors and Treasury traders to return to the stock market." When this happens, sectors with strong cash flow and high dividend values will receive a boost. These sectors include consumer staples, utilities, and telecommunications. Steepening yield curve will also benefit the financial sector.

Cox said, "They won't go back to buying Nvidia, and that money won't go back to Apple and similar stocks." He referred to tech stocks that were popular during the peak of the rate hike cycle. "You can see the flow of funds, you know, flowing back to dividend stocks This is why the market is expanding again."

At the same time, he said, small-cap stocks can also be expected to rise. This interest rate-sensitive sector has been under pressure for the past few years, but recently it has been upgraded to neutral by Morgan Stanley. The bank stated that if GDP continues to be revised upwards , along with some other factors, it will be "completely bullish" on this sector.

No matter what investors do, they should not be bearish and sell.

Cox said, after all, the "no landing" scenario is the best outcome for the economy, given the strong growth, which actually dispels concerns about a recession. He added that this will be the fourth time the Fed has cut interest rates without an economic recession, and in the previous three instances, the market was extremely strong two to three years later. Cox added:

"This scenario is not the benchmark scenario for many who hope for a significant drop in bond yields and interest rates. I think people need to be cautious about their expectations for Fed action. Rates will not drop as much as people imagine, and that's okay, it's actually a good thing."