Economic punditry lately has reminded me of the “parallel universes” often depicted in Star Trek. (I plead guilty: I’m an avid Trekkie.) An example of this Star Trek trope is how the militaristic Terran Empire rises to interstellar power instead of the peace-loving Federation.

I was listening to certain Washington big shots last night trashing the U.S. economy, depicting our country as an apocalyptic hellscape of raging inflation and chronic unemployment. Welcome to the parallel universes that are America.

It’s not an exaggeration to say that partisan politics is tearing America apart into two divergent ideological spheres. Each sphere, red and blue, subscribes to its own notion of reality.

As an investor, you must deal in reality, not misinformation. I won’t address the other topics on which the country is divided; that’s not my purview. But I will address the chasm between public perceptions and economic reality.

According to a Gallup poll released in June, 27% of Americans say the economy is getting better versus 66% who say it’s getting worse (6% say it’s staying the same and 1% have no opinion).

The facts tell us that the U.S. economy and by extension the financial markets are in good shape and getting better. You should trade accordingly. Below, I’ll steer you in the appropriate directions.

Inflation continues to cool off…

The U.S. Bureau of Economic Analysis (BEA) reported Friday the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) index decelerated in June, despite resilience in consumer spending and jobs growth.

The latest PCE data underscore that the economy, although slowing, still exhibits strength despite the U.S. central bank’s efforts since March 2022 to curb it. Hence renewed optimism that we’ll witness an economic “soft landing,” whereby the Fed tames inflation without tipping the economy into a recession.

The PCE index rose 3% in the 12 months through June, in line with consensus expectations. That level was a slowdown from 3.8% in the previous month.

After excluding the volatile components of food and fuel, the “core” PCE rose by 4.1%, slightly less than expected. That’s considerably lower than the peak of 5.4% in 2022, and it represented the lowest reading since September 2021.

The Fed’s policymaking Federal Open Market Committee (FOMC) this week lifted interest rates to a range of 5.25% to 5.50%, the highest level since 2001.

At his post-announcement press conference Wednesday, Fed Chair Jerome Powell asserted that the FOMC has left the door open to further tightening if forthcoming data show that inflation is lingering at elevated levels.

Fed officials pay particularly close attention to core inflation, because it strips out extreme price gyrations and provides a clearer picture of where inflation is actually moving. The Fed’s inflation target is 2%, which means the crucial core price gauge of 4.1% is about twice the goal.

That said, the Fed has made enormous strides in dampening inflation, which is fueling optimism on Wall Street that the tightening cycle is nearing an end. What’s more, supply chain disruptions are on the mend, a global disinflationary trend that arguably has done more to cool inflation than rate hikes.

Economic growth stays on track…

The Fed’s economic staff revised its economic forecast at the FOMC’s meeting this week and is no longer projecting a downturn this year.

The BEA reported Thursday that U.S. gross domestic product (GDP), adjusted for inflation, climbed at a 2.4% annual rate in the second quarter of 2023. That was up from a 2% growth rate in the first three months of the year and much faster than economists had expected (see chart).

Buoyed by the latest inflation and GDP data, the main U.S. stock market indices closed higher Friday, as follows:

• DJIA: +0.50%
• S&P 500: +0.99%
• NASDAQ: +1.90%
• Russell 2000: +1.36%

The S&P 500 notched its third consecutive week of gains. The benchmark 10-year Treasury yield slipped below 4.00%, amid inflation optimism and expectations that the Fed will soon stop tightening.

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The headline national unemployment rate currently stands at 3.6%, the lowest since 1969. But at the same time, inflation is coming down and the economy is sidestepping an outright recession. In other words, the fearmongers are wrong.

Key stock market technical indicators remain bullish. The S&P 500 hovers well above its 200-day moving average, as does the New York Stock Exchange Advance/Decline line (NYAD). The former reading suggests momentum; the latter signals improving market breadth.

The CBOE Volatility Index (VIX) continues to fall and hovers below 14, which reflects diminishing fear and stress in the market.

Indeed, we’re witnessing the beginnings of a secular bull market. It’s time to scoop up the growth stocks on your wish list, while their valuations are still reasonable.

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John Persinos is the editorial director of Investing Daily.

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