Can the Stock Market Keep Going Up? Market Watchers Think So.

The bullishness on Wall Street is largely based on confidence that the Federal Reserve will tame inflation, the economy will remain solid and corporate earnings will continue to grow.

Stocks have climbed since the Federal Reserve lowered interest rates a month ago, with investors betting that it marked the beginning of a series of cuts that will offer a tailwind to the market.

And the economy continues to hum, with reports this month showing robust hiring and milder inflation, bolstering the rally.

As big companies begin to announce their latest quarterly financial results, providing key numbers that analysts use to model where the market is headed, there is a renewed sense of optimism across Wall Street. That bullishness is largely based on confidence that the Fed will tame inflation without tipping the economy into recession, a “soft landing” seldom achieved by policymakers.

“There has been a marked shift relative to 18 months ago,” said Ben Snider, an equity analyst at Goldman Sachs. “When I talk to investors there is much less concern about an economic downturn.”

Falling interest rates are generally good news for stocks because lower borrowing costs can boost corporate profits and raise market valuations. Lower rates also make the potential gains on stocks more attractive relative to the returns offered by bonds.

The S&P 500 index has risen 4 percent since the Fed cut rates last month as investors have funneled more than $20 billion into funds that buy U.S. stocks. The benchmark index has set a series of fresh record highs, including after a rise on Monday.

Last week, analysts at Fundstrat and Goldman Sachs both raised their year-end forecasts for stocks, with Goldman expecting a further gain of just a little over 2 percent, after the index surpassed its previous prediction. That would come on top of what has already been a buoyant year, with the S&P 500 up more than 20 percent through Monday.

Even just a few weeks ago, concerns about the economy led analysts to lower their expectations for quarterly corporate earnings growth by more than usual, according to data from FactSet.

But the initial batch of earnings reports late last week from bellwether corporations like JPMorgan Chase and Wells Fargo was stronger than anticipated, a sign that the economy remained solid. More companies open their books this week, including the rest of the big banks, Johnson & Johnson, Netflix and Procter & Gamble. This next wave of presentations to analysts will help bolster the stock market’s heady valuation — or not.

Despite the bumper gains for major stock indexes, beneath the surface many companies and even entire sectors have recorded far less heady gains this year, with much of the rally being driven by the giant tech companies on the forefront of artificial intelligence. Investors hope that if the economy can remain resilient, the gradual decline of interest rates will lift more unloved areas of the market, offering a new driving force for the rally — and the economy in general.

And while the Fed’s September rate cut was too recent to have much of an impact on the latest batch of earnings, it could still shift sentiment, said James Demmert, chief investment officer at Main Street Research.

“It feeds the animal spirits of people running businesses to have the confidence to say we don’t need to be cost cutting, we need to be investing,” he said.

But the Russell 2000 index of smaller companies, which is linked to the ebb and flow of the U.S. economy, has struggled to keep up with the indexes dominated by multinational giants.

Much of the thinking behind forecasts for the continued ascent of stock prices centers on broader group of industries generating the lift, but the reality is that indexes like the S&P 500 will continue to remain heavily dependent on investors’ exuberance for tech and especially A.I.

Goldman Sachs expects higher earnings, and therefore higher stock prices, to be driven primarily by a more resilient economy that supports spending. But the bank also highlighted a recovery in the supply chain for the microchips that power A.I. applications to raise profits for companies that make the chips, as well as for companies, like Google and Microsoft, developing new A.I. applications.

“It’s not that we expect the megacaps to do poorly, but the earnings environment for the rest of the market does seem to be improving,” said Mr. Snider of Goldman Sachs.

Other concerns, such as the intensified fighting in the Middle East and the uncertainty around the U.S. presidential election, have been downplayed as less important than the positive economic conditions supporting earnings growth.

Typically, rising geopolitical tensions generate sharp but short-lived sell-offs, while presidential elections are often preceded by a mild sell-off followed by a rally. Analysts at Deutsche Bank recently said these sorts of events might have less of an effect on the market than in the past.

“One key point with geopolitical shocks, as well as elections, is that the economic context has eventually always dominated,” the analysts noted.

And that context, for the time being, remains favorable to a higher push for stock prices. Even as the Fed has lowered the short-term interest rates it controls, longer-dated rates in the market for U.S. Treasury bonds have risen, typically a sign of expectations for future economic growth.

Bob Elliott, chief investment officer at fund manager Unlimited, said the economy was in “a pretty unusual circumstance globally.” Neither growth nor unemployment is flashing warning signs over the economy, “but still we are getting easing,” he said, referring to cuts in interest rates by central banks around the world as the global economy continues to expand.

“It’s not a normal cycle,” said Kristina Hooper, chief market strategist at Invesco.