Stocks are at record highs, but it'll only get harder from here

Expectations for interest-rate cuts are waning. Some investors say stock gains might be hard-won as a result

Wall Street entered 2024 betting the year would go perfectly, but an up-and-down start for stocks and bonds suggests the going won't be easy.

Stocks have climbed to records, driven by cooling inflation that has spurred investors to anticipate as many as six interest-rate cuts. Falling rates often boost share prices by reducing the relative appeal of bonds and making it cheaper for companies and consumers to borrow, lifting corporate profits.

But despite Friday's record close in the S&P500, the rally in major indexes has stalled in recent weeks-the benchmark index is up less than 2% from where it was a month ago-while the labor market and economy show few signs of slowing. Bond yields have ticked up in the new year after falling sharply at the end of 2023.

This dynamic is prompting some analysts and portfolio managers to warn that further stock gains might be halting because the rate cuts that are widely expected to power the market higher might not arrive as quickly as bullish investors had wagered.

"Clearly, the consensus is that inflation is under control and we're heading for a soft landing," said Doug Fincher, a portfolio manager at New York City-based hedge fund Ionic Capital Management. "It's certainly possible-but a lot of that is priced in." The S&P 500 is up 1.5% this year, but analysts see more signs of caution under the hood.