In the U.S., stocks hover at record highs, inflation is falling, the economy is growing, and unemployment has dropped to a 50-year low. Or as the media’s chattering class puts it: “America is doomed!”

Below, I put current market dynamics into calm perspective. The upshot: The bull market is alive and well, albeit with a few caveats.

Admittedly, in a bearish trend, Treasury bond yields have been rising, with the 10-year yield inching up to 4.31% and the 2-year yield posting a marginal increase to 4.70%. This recent uptick in yields, particularly in the shorter maturities, signals shifting market expectations over the timing and extent of potential Federal Reserve interest rate adjustments.

In recent weeks, the rapid ascent of Treasury yields has stoked concern on Wall Street, particularly with the 2-year yield climbing about 0.55% from recent lows. This surge in yields coincides with the increasing probability of the Fed deferring a rate cut to the middle of the year.

Despite this increase in yields, equities have managed to maintain their upward trajectory, with the S&P 500 boasting a roughly 6% increase year-to-date. This resilience stems from healthy corporate earnings growth and steadfast consumer consumption patterns, underscoring the underlying strength of the economy despite monetary policy uncertainty.

Inflation has been restive lately, but the long-term prognosis points downward. Investors nervously await the latest personal consumption expenditures (PCE) inflation report, slated for release Thursday. The PCE, regarded as the Fed’s preferred inflation gauge, holds significant sway over market sentiments and monetary policy decisions.

The CME Group’s FedWatch tool currently puts the odds of the Fed standing pat on rates next month at 97.5% (see chart).

Projections for the PCE indicate a potential uptick in monthly figures, with a slight easing in year-over-year comparisons.

Headline PCE inflation is anticipated to rise by 0.3% month-over-month, surpassing the previous month’s reading of 0.2%. However, on an annual basis, headline PCE inflation is expected to hover at around 2.4%, inching closer to the Fed’s target of 2.0%.

Similarly, core PCE inflation, excluding volatile food and energy components, is poised to register a monthly increase of 0.4%, surpassing the previous month’s reading of 0.2%. Yet on an annual basis, core PCE inflation is anticipated to moderate to 2.8%, below the previous month’s figure of 2.9%. Substantial deviations from these consensus expectations could trigger a pullback in equities.

While January data suggested some seasonally stronger inflationary trends, the outlook for the coming months suggests a moderation in core PCE inflation. Factors such as softening shelter and rent components, coupled with easing services inflation, should support the deflationary trend in the foreseeable future.

Against this backdrop, market expectations for Fed rate adjustments have evolved. From initial projections of five to six rate cuts earlier in the year, expectations have now converged around three rate cuts, starting with the June Federal Open Market Committee (FOMC) meeting. This recalibration in market sentiment aligns with unexpectedly hot inflation data earlier in the year and cautious remarks recently expressed by Fed officials.

The forthcoming March 20 FOMC meeting also will unveil updated economic projections and Fed funds rate forecasts. Expectations call for an upward revision in economic growth forecasts for 2024, coupled with reiterated messaging emphasizing patience and a deliberate approach towards achieving inflation targets.

Mega-cap tech stocks continue to function as the primary drivers of the equity rally, but it’s worth noting that they’ve evolved beyond riskier growth bets and into safe havens.

As this earnings season has shown, these tech behemoths have for the most part exhibited reliable revenue and profit growth. They also sport fortress-like balance sheets. When investors get nervous, they tend to turn to companies such as the “Magnificent Seven” tech names.

WATCH THIS VIDEO: Will The “Magnificent Seven” Ride High in 2024?

Earnings reports from S&P 500 companies as a whole have been surprising on the upside and projections call for resurgent profit growth in future quarters. Provided we don’t get hit with a “black swan” from overseas in the form of geopolitical strife, the rally appears to be on firm ground.

That said, the main U.S. stock market indices took a breather Wednesday from their recent run of record highs, closing lower as follows:

• DJIA: -0.06%
• S&P 500: -0.17%
• NASDAQ: -0.55%
• Russell 2000: -0.77%

The CBOE Volatility Index (VIX), aka “fear gauge,” jumped about 2% to reach 13.72. All eyes are now on the PCE report, scheduled for release Thursday.

If the PCE comes in hotter than expected, stocks that have been priced for perfection probably will swoon. If that’s the case, “buying the dip” would be a shrewd move.

Another shrewd move: increasing your exposure to cryptocurrency.

The “blue chip” of crypto, Bitcoin (BTC), gained 156% in 2023. BTC and the broader crypto market have embarked on a new bull market this year. In fact, crypto is red hot.

Every portfolio should contain crypto assets. But you need to be informed, to make the right choices. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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