As the trend of moderating inflation persists, the market stands on the cusp of a prolonged period of substantial gains.
Source: shutterstock.com/sweeann
Following the release of today’s inflation report, the puzzle of the current economic landscape is complete. This development has sparked excitement in the stock market – and rightfully so.
July’s personal consumption expenditures (PCE) data unveiled that the core PCE Price Index, a crucial gauge of inflation excluding volatile food and energy prices, remained stable at 2.6% year-over-year.
This figure solidifies the ongoing moderation of inflationary pressures towards very favorable levels. With this in mind, investors are increasingly optimistic about the Federal Reserve’s impending interest rate cut next month.
This anticipated rate reduction is expected to be the first of many over the next year, offering significant support for the economy to regain momentum. The optimism surrounding this bullish prospect is likely to uphold stock performance in the foreseeable future.
Yet, today’s positive inflation report is not the lone driving force behind the market optimism.
Inflation and Earnings: The Momentum Fueling Stock Uptrend
Adding momentum to the market’s positivity is Nvidia’s (NVDA) exceptional earnings report released earlier this week.
The semiconductor behemoth exceeded Wall Street’s revenue and profit expectations, fueled by soaring demand for its advanced AI chips. Nvidia’s results underscore the pivotal role of the tech sector in the current market surge, emphasizing the enduring strength of the significant AI investment cycle and confirming the vitality of the AI Boom.
September traditionally showcases volatility in stocks. Nevertheless, in practice, fundamentals overshadow seasonal patterns. The convergence of diminishing inflation apprehensions and robust earnings is likely to defy this seasonal volatility.
Investors are now eagerly anticipating key economic data releases and corporate earnings updates with a revived sense of positivity. Should the trend of moderating inflation persist – alongside other tech companies emulating Nvidia’s success by delivering strong results – the market is poised for an extended period of substantial gains.
That optimistic outlook is precisely what we anticipate.
The Verdict
We anticipate that the upcoming September meeting of the Federal Reserve could mark a pivotal moment. The market widely anticipates the central bank’s first interest rate cut since the “COVID Crash” in early 2020. Furthermore, most investors expect a series of rate cuts in every future meeting over the coming year.
And America strongly requires these rate cuts.
Consider Dollar General (DG), whose stock recently endured its sharpest single-day decline in history. Why? Its earnings exposed that lower-income Americans are feeling the strain of high rates.
During Dollar General’s quarterly conference call, management discussed at length how its core clientele is struggling with maxed-out credit cards, missed bill payments, and overall financial hardship.
Hence, it’s imperative for the Fed to step in, cut rates, revitalize the economy – and propel stocks to new highs.
Of course, not every stock at present displays exceptional upside potential. However, owing to the market turbulence witnessed earlier this month, we have pinpointed a few selections that could soar in the coming months.
Explore our top stock picks for the current climate.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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