In a busy week of economic data and corporate earnings reports, the U.S. stock market ended on a positive note, with major indices hitting record highs. However, market sentiment remains uncertain as investors anxiously await the Federal Reserve's decision on interest rate cuts.

The Dow Jones Industrial Average closed the week with its ninth record close of 2024, while the S&P 500 index scored its seventh record close. The Nasdaq Composite also showed signs of strength. Despite these positive developments, concerns over inflation and the potential impact on rate cuts loom large.

Market experts have been debating the possibility of a "no landing" scenario, where the economy remains strong while inflation stays on target. Richard Flax, chief investment officer at Moneyfarm, suggests that such a scenario could still be positive for U.S. stocks as long as inflation remains steady. However, if inflation picks up, the Federal Reserve may hesitate to cut rates significantly, which could lead to trouble, according to Flax.

The recent blowout January jobs report, which saw the U.S. economy add an impressive 353,000 new jobs, has further reduced the likelihood of a rate cut in March. Hourly wages also saw a sharp increase of 0.6% in January, the largest gain in nearly two years. This data, along with relatively strong corporate earnings, has dampened expectations for immediate rate cuts.

However, former Fed vice chairman Roger Ferguson warns of a new risk called the "risk of no landing." In this scenario, inflation ceases to fall despite a resilient economy. While Ferguson does not believe it is the likely outcome, traders have adjusted their expectations accordingly. The likelihood of a rate cut in March dropped from over 46% to 20.5%, according to the CME FedWatch tool.

The week ahead will shed more light on the trajectory of rate cuts. Market participants will closely watch the ISM services sector data, U.S. trade deficit numbers, and weekly initial jobless benefit claims. Additionally, several Fed officials are scheduled to speak, providing valuable insights into future monetary policies.

Despite uncertainties, opinions on the market outlook remain divided. José Torres, senior economist at Interactive Brokers, believes it is a risky period until May and advises investors to adopt a risk-off approach. On the other hand, Keith Buchanan, senior portfolio manager at Globalt Investments, maintains a more optimistic view, citing the slowdown in inflation and strong economic data as factors supporting a bullish market expectation.

In terms of sectors, Torres favors healthcare, utilities, consumer staples, and energy, while Buchanan sees a favorable setup for risk assets.

As the U.S. stock market continues its upward climb, all eyes remain fixed on the Federal Reserve's decision on interest rate cuts. Market participants eagerly await further clues on the possible trajectory of rate cuts, which will significantly impact market sentiment and the future of the U.S. economy.