(Bloomberg) -- Anyone betting that a hawked-up Jerome Powell would strike fear on Wall Street this week was left disappointed.

Stubborn resilience in bonds, commodities and the broader universe of stocks — with a fresh surge in crypto — were the defining features of the trading landscape as the Federal Reserve chair delivered hours of congressional testimony.

While Powell did little to clarify a firm schedule for lowering interest rates, one proxy for cross-asset performance — the RPAR Risk Parity exchange-traded fund that holds bets on fixed income, commodities and equities — eked out its best advance of the year. An ETF tracking corporate credit was similarly buoyant.

The long-suffering equal-weighted version of the S&P 500, which strips out size biases and dilutes the influence of megacap tech, touched a record for the first time since January 2022.

These market moves reflect a growing detente between Powell and traders that has been building ever since signs have emerged that he will succeed in snuffing out inflation while keeping the economy on track. Over two days on Capitol Hill, Powell gave no evidence he is bothered by surging asset prices, which arguably work against his goal of keeping financial conditions tight enough to wring excesses out of the economy.

“Powell stuck to the script and he delivered what the market was looking for, which is the Fed is taking a measured approach to potential rate cuts,” said Mandy Xu, head of derivatives market intelligence at Cboe Global Markets. “The fact that he didn’t sound more hawkish, the fact that he didn’t change his tone, that was a bullish sign.”

The RPAR Risk Parity ETF (ticker RPAR), designed to generate steady gains across market conditions, rose 1.4% for the best week since December. While stocks ended Friday on a sour note with the S&P 500 finishing the week with a slight decline, the retreat came after a stretch where the index rose in 16 of the previous 18 weeks — a string of resilience not seen in five decades. Its equal-weight cousin gained almost 1% over the five days.

Broadly, risk appetite is running high. Credit markets are acting like the easy money era is back, with junk bond yields and their investment-grade counterparts narrowing. Bitcoin this week briefly surpassed $70,000 for the first time. And traders are piling in to bullish options, chasing momentum in everything from tech behemoths to meme stocks. 

Week-after-week buying has sparked bubble warnings, with Wall Street strategists debating whether the current tech rally — propelled by optimism over artificial intelligence — is running ahead of itself as it did during the dot-com mania in the 1990s. To skeptics, crowding in the largest companies puts the broader market on a fragile ground with valuations getting stretched.

Such concern is misplaced, according to Goldman Sachs Group Inc. strategists. A team including Ben Snider studied market behavior in the past century and found the S&P 500 experienced similar concentrations in seven other instances, with four heralding further gains 12 months later. While a trade consisting of buying winners over losers suffered in those occasions, a reversal in the momentum factor has largely coincided with positive shifts in the economic environment, the analysis showed. 

The strategists further identified 26 cases of momentum reversals and found that while the performance of leaders was inconsistent, the previous laggards rose in every episode.

That’s what’s happening, at least for now, with the tech-centric rally spreading to once-forgotten areas. The Russell 2000 index of small-caps rose for a second week, while the Nasdaq 100 slipped. Cheap-looking stocks are poised for the best month against their growth counterparts since December 2022. 

“The signs such as small caps outperforming over the past couple of weeks are indicative of that market health,” Yung-Yu Ma, chief investment officer for BMO Wealth Management, said by phone. “We don’t believe it’s frothy.”

With next week marking the two-year anniversary of the central bank’s first interest-rate increase of the cycle, Powell’s scorecard is bolstered by an economy that has escaped the aggressive tightening campaign without a recession. Following a slowdown in early 2022, gross domestic output has returned to the growth path while consumer prices eased toward the Fed’s 2% goal. Friday’s monthly payrolls added to the sanguine picture where the labor market stays resilient and wage growth is cooling. 

The S&P 500 has climbed 21% since the Fed embarked on its inflation-fighting battle in March 2022, with all major industries posting gains except for utilities and real estate, stocks whose appeal is hurt by higher rates. Fixed income has not fared as well, thanks to a repricing higher in yields. A Bloomberg index tracking Treasuries is still down 5% over two years despite a bounce from the biggest slump on record. Investment-grade bonds are flat over the stretch, while high-yield has outperformed, climbing 9%. 

All told, financial conditions have loosened to levels that by some measures are easier than before Powell & Co. kicked off their battle against inflation. With all the asset gains feeding into wealth creation, it bodes well for consumer spending. At the same time, it stokes fears that unchecked risk taking in financial assets could seep into the economy and revive inflation, undermining the Fed’s case for rate cuts. 

During his testimony to Senate Banking Committee, Powell said the central bank is “not far” from getting enough confidence in initiating a rate reduction. While he didn’t receive questions on the state of financial markets, the fact that he didn’t take the opportunity to push back on the relentless equity rally was seen by some market watchers as a green light to keep bidding up asset prices. 

Earlier this year, Powell’s warnings against faster and earlier rate cuts have prompted bond traders to pare back their expectations. The market now priced in rate reductions of 95 basis points for 2024, down from roughly 160 basis points in December. 

“The fact that yesterday was business as usual and not a big market moving event is good,” Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said by phone Friday. “Powell wanted to very much stay on script, continue to give us this playbook.” 

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