The S&P 500 is up 20% from October’s low. Economists at UBS say that investors will at least need to believe in the following three narratives to see a sustainable rally in equities.

Boosted market conviction that the Fed is close to the end of its hiking cycle

The Fed won’t increase interest rates any more than the two hikes implied by the latest ‘dot plot.” From here, this conviction could only go higher if disinflationary forces strengthen, or if investors believe that political considerations will lead the Fed to allow inflation to run above its target for an extended period.

The widely predicted US recession is canceled. Confidence that a recession can be avoided could increase if real income growth continues to improve, companies start restocking inven­tories, and the labor market remains robust.

The rally in artificial intelligence has been justified, and a combination of enthusi­asm and FOMO (‘fear of missing out’) helps keep it going.