Guess what? New records. New records for stocks.

A month on from the local lows (“all the way” down at SPX ~4970), the world’s benchmark risk asset par excellence scaled a fresh high, spurred on by what counts these days as a benign read on consumer prices and an underwhelming retail sales release.

Core inflation’s still a mile above target in the US, and I personally doubt it’ll settle close to the Fed’s goal anytime soon. Services inflation almost surely won’t recede anywhere near 2%, something Jerome Powell tacitly conceded during remarks in — checks notes — Amsterdam on Tuesday. (Services inflation, on the CPI gauge, routinely ran above 2% pre-pandemic and ran between 4% and 5% from 1984 through 1990.)

But equities were just happy to get a hint of “bad” news (i.e., underwhelming prints) after three months of virtually uninterrupted good news (accompanied naturally by vigorous inflation readings). According to fund managers, the subjective odds of a “no landing” macro scenario increased sixfold from December to April.

As the figure shows, panelists in BofA’s monthly survey of “professionals” saw virtually no chance of a hard landing as of last month and better than one in three odds of “no landing.” Perceptions shifted a bit in May amid nascent signs of weakness and softer labor market data.

Stocks largely took the good news in stride in Q1, but equities appeared to reach the “too much of a good thing” threshold last month, when macro resilience threatened to push the first Fed cut all the way out to Q4, or perhaps even into 2025. A spate of bad news — or, more accurately, data which suggested the economy’s cooling around the edges — was just what the doctor ordered. Market participants were ready and willing to trade some “no landing” probability for a little “hard landing” if it meant increasing “soft landing” odds in the process.

Of course, the line between “soft landing” and “hard landing” is a fine one. Wednesday’s spending update showed nominal retail sales flatlined last month, while a key underlying aggregate evidenced a 0.3% decline. The New York Fed’s quarterly debt report, released earlier this week, showed delinquencies rose again in Q1 as Americans labored under a record pile of credit card debt.

For now, though, investors are looking on the bright side of the downside, which is to say they’re cheering a 14-month low on Bloomberg’s Economic Surprise Index. I flagged this a few days ago. The annotations in the figure on the left (below) are from Nomura’s Charlie McElligott.

The figures on the right show how things have changed since mid-February.

“We’ve spoken about clear signs of US growth cooling in recent weeks in stark contrast to the March / April ‘no landing’ term premium rebuild which roiled assets,” McElligott wrote Wednesday. “That concern is now long gone after today’s double-whammy,” he added, referring to the CPI release and the retail sales report, both of which he called “benign for assets.”

Yes, “benign for assets,” where that means bullish for equities, bonds and rates.

With Wednesday’s rally, twos were ~25bps off the April peaks and two Fed cuts were (more than) fully priced for 2024. The market has now “gotten back” nearly one quarter-point cut versus pre-May FOMC pricing.

Long story short, we’re in the sweet spot. For now, the US data suggests “slowing growth without a full-blown economic crash,” as McElligott put it.

Meanwhile, BMO’s Brian Belski has seen enough. He raised his year-end S&P target to 5,600 on Wednesday, making him the Street’s biggest bull.

“It has become clear to us that we underestimated the strength of the market momentum,” Belski said.