(Bloomberg) -- The S&P 500 Index can keep soaring to all-time highs even if the Federal Reserve forgoes interest-rate reductions this year, according to Deutsche Bank AG.

Equities strength can persist in the face of the Fed’s higher-for-longer stance as long as the economy and earnings are growing, Binky Chadha, chief US equity and global strategist at the bank, said in an interview. Chadha lifted his S&P year-end forecast to 5,500 last week, about 4% above Thursday’s closing level.

It’s an assuring message for investors after US stocks slumped Thursday in the wake of data showing a pickup in US business activity, which led traders to push out the expected timing of Fed rate cuts to year-end. The S&P 500 fell below the 5,300 mark, in its worst day since late April, although a rally in Nvidia Corp. shares tempered the drop.

But Chadha said episodes where investors got spooked by the prospect of higher rates have been fleeting, and there’s no reason to expect that trend will change. Historically, he says, 3% to 5% pullbacks happen every two to three months.

“The lesson of the last two years is that when rates suddenly go up, the equity market sells off, and if rates then maintain their level equities rally right back,” he said.

Traders have recalibrated their expectations for how much the Fed will ease policy as inflation remains sticky and officials have signaled they’re in no rush to cut. Markets are now pricing in just one full reduction this year, compared with bets on as many as seven 2024 cuts back in December.

Even so, the S&P 500 is still up roughly 10% this year and has set 24 closing records — meaning a fresh high on about a quarter of all trading days.

The strategist pointed to a strong earnings cycle, economic expansion and easing price pressures to explain his optimism. While the consensus has shifted away from calling for a US recession, he noted that forecasters have underestimated economic growth for seven quarters. Inflation, meanwhile, mostly reflects factors like seasonality and the stickiness of measured rents, he said.

While valuations look “pretty full,” Chadha says they aren’t too lofty by historical measures.

“Is the market pricing in too much? We don’t think so,” he said. “What I would say is the risk to growth relative to the macroeconomic consensus looks to us to be on the upside, and I would argue that the risks to inflation we see as basically being to the downside.”

--With assistance from Sagarika Jaisinghani.

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