The red flags are fluttering in a strong wind, warning of dangerous investment currents. Among the bearish technical signs: The S&P 500 has fallen below its 50- and 100-day moving averages; the CBOE Volatility Index (VIX) has surged to nearly 20, its highest reading since May; and the benchmark 10-year U.S. Treasury yield has surpassed its multiyear resistance level of 4.50%.

Adding to these woes are a still-hawkish Federal Reserve; a “Guy Fawkes” faction in Congress that’s determined to blow up the government; a protracted strike by the United Auto Workers (UAW); and the seasonal tendency of September to be the worst month of the year for stocks.

Geopolitical risks loom large as well. The Russia-Ukraine war continues to cause death, destruction, and regional instability; relations between the U.S. and China are at their lowest point in decades; surging crude oil prices threaten to reignite inflation; and the Chinese economy is in dire straits.

WATCH THIS VIDEO: Assessing The Latest Risks to The Rally

Not surprisingly, the confidence of U.S. consumers has slipped. The Conference Board reported on Tuesday that its Consumer Confidence Index declined for the second consecutive month in September. The index fell to 103, down from the upwardly revised 108.7 recorded for August. That’s the second-lowest index level of 2023, ahead of only May’s 102.5 reading.

According to the Conference Board, consumers are worried about rising gasoline prices, the political chaos in Washington, and elevated interest rates.

And yet…there still exist many reasons for bullishness. If you strip out energy costs, inflation has been dramatically falling. The Fed has been making hawkish noises lately but the fact is, the tightening cycle is coming to an end.

Earnings for S&P 500 companies for the third and fourth quarters of 2023 are getting revised upward and forward guidance for companies for full-year 2023 is generally sanguine. U.S. economic growth continues to surprise on the upside and it appears that we’ve dodged a recession. The national unemployment rate is 3.8%, a 50-year low. Analysts project a gain of at least 19% for the S&P over the next 12 months.

The S&P CoreLogic Case-Shiller National Home Price Index in July, released Tuesday, showed an increase of 0.6% month-over-month and 1% over the last 12 months. July’s movement represented a new high for the nationwide home index, exceeding the record set in June 2022 (see chart).

Building permits climbed last month, reaching their highest level since last September, a positive sign that new construction activity is resilient. Consumers are getting gloomier but their actual behavior doesn’t indicate capitulation (yet).

The main U.S. stock market indices closed mixed Wednesday in volatile trading, as follows:

• DJIA: -0.20%
• S&P 500: +0.02%
• NASDAQ: +0.22%
• Russell 2000: +0.98%

Earlier in the session, the Dow Jones Industrial Average was up as much as 112 points; it closed down 68.61 points. Rising bond yields were the major culprit. The 10-year Treasury yield rose past 4.61%, which unnerved equity markets. The S&P 500 is on pace for its worst month since December.

Despite sharply falling inflation and indications that we’re on course for an economic soft landing, Fed Chair Jerome Powell and his cohorts seem intent on appearing tough. (They’re haunted by the ghost of Paul Volcker.) This week, Powell and other Fed officials will be on the speaking circuit. Remember to distinguish jawboning from actual policy.

Once we get through this turbulent period, the stock market rally should get back on track. Don’t overthink negative news headlines. They come and go. I remember a truism that I learned in journalism school: If it bleeds, it leads. In other words, it’s the inherent nature of the media to emphasize bad news.

Memory is selective. As a survival instinct, we tend to erase (or revise) unpleasant recollections. The country seems to suffer collective amnesia about the remarkable speed and extent to which we bounced back from the ravages of COVID.

The Fed’s projection for U.S. gross domestic product (GDP) growth currently stands at 2.1% for full-year 2023; the headline consumer price index (CPI) has fallen to 3.7% on an annualized basis; and the S&P 500 is up about 12% year to date.

I occasionally get emails from readers who argue that the U.S. economy is a disaster. I simply explain the facts, which say otherwise. I also tell them to tune out the partisan commentary on television.

Case in point: I recently saw a cable news report that referred to San Francisco as a “third-world hellhole.” Really? Third-world hellhole?

To be sure, The City by the Bay is struggling with a slumping commercial real estate market, and certain isolated crimes have grabbed headlines. But the city currently has lower-than-average rates of violent crime when compared with other major U.S. cities.

Ignore the “anger-tainment” that’s peddled by the media. The long-term fundamentals, such as corporate earnings and economic growth, are turning positive.

The ascent of the 10-year yield on Wednesday is a troublesome sign. However, bearish sentiment could be approaching a bottom, which in turn would signal a buying opportunity. If the yield starts a meaningful retreat below 4.50%, it would be bullish for stocks.

If you’re still spooked by market uncertainty, consider the level-headed advice of my colleague, Jim Pearce.

Jim Pearce is the chief investment strategist of our flagship publication, Personal Finance. Jim has unearthed a once “secret” income power play that’s giving everyday investors the opportunity to collect huge payouts, regardless of Fed policy or the ups and downs of the markets. To claim your share, click here.

John Persinos is the editorial director of Investing Daily.

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