Welcome to my latest video presentation, for Monday, July 15. The article below is a condensed transcript; my video contains additional details and several charts.

Let’s review the year’s developments as of midsummer.

A bitterly fought presidential campaign amid a sharply divided electorate; escalating racial tensions; a divisive Republican standard-bearer clamoring for law and order; shootings of political leaders and warnings of civil war; growing economic insecurity among the working and middle classes; national political conventions poised for street violence; increasing incivility and a coarsening of public discourse; worsening superpower tensions among the United States, Russia and China…

Yep, the summer of 1968 was a scary time. I was only 10 years old but I vividly recall the images of urban mayhem on television.

As I survey the similarly tumultuous events of 2024, I’m reminded of the often-quoted malapropism of baseball legend Yogi Berra: “It’s deja vu all over again.”

And yet, despite today’s dire headlines, I’m optimistic about the prospects in the second half of this year for the economy and the stock market. Don’t get spooked by the news; underlying economic and financial conditions are favorable.

When history rhymes…

By 1968, economic growth and the stock market had been rising, with only minor hiccups, for two decades. Prosperity would continue until the 1973-74 bear market, when stocks across the board got crushed. Today’s bull market is about 21 months old. Do we face a similar day of reckoning? The fundamental and technical indicators say no.

In a world where the stock market feels like a daredevil tightrope walker, the latest economic data has handed it a balancing pole.

The backdrop of slowing but still positive economic growth, coupled with easing inflation, has set the stage for continued strong performance in the equities market. Both the S&P 500 and the NASDAQ have achieved record highs, underscoring the market’s resilience and potential for further gains.

In June, the consumer price index (CPI) inflation rate declined to 3.0% year-over-year, marking the lowest level since March 2021. This downward trend in inflation bolsters consumer and business confidence.

On the other hand, the producer price index (PPI) saw an uptick to 2.6% in June, above the expected 2.3%. This rise was largely driven by increased wholesaler margins, which typically indicate robust end-demand conditions.

The uptick in the PPI was an unwelcome surprise, but the post-pandemic recovery isn’t likely to move in linear fashion. Taming inflation has been bumpy, but progress is being made. With inflation trending lower, the Federal Reserve is likely to stay on course to reduce interest rates by the end of the year.

The prospect of interest rate cuts by year’s end helped drive the equity markets to yet another winning week (see my video for detailed charts).

The economy is decelerating but not lapsing into recession. The labor market, while still strong, shows signs of cooling. The unemployment rate has risen to 4.1%, up from its post-pandemic low of 3.4% and slightly above the Fed’s forecast of 4.0% for 2024. Coincidentally, we haven’t seen unemployment this low since 1969, when Nixon was in the White House.

An increase in unemployment could exert downward pressure on wage growth, which in turn may help keep inflation in check. Slower wage growth can alleviate some of the cost pressures on businesses, potentially leading to higher profit margins and supporting further stock market gains.

It’s a good sign that the S&P 500, as measured by the benchmark SPDR S&P 500 ETF Trust (SPY), hovers above its 20-, 50- and 200-day moving averages.

The tech-heavy NASDAQ composite also hovers above its major moving averages, driven higher by expectations of lower interest rates and the continuing mania over artificial intelligence (AI).

Moving averages are key technical indicators. A moving average helps smooth out price data by creating a constantly updated average price. A rising moving average indicates that the security or index is in an uptrend, while a declining moving average indicates a downtrend. The shorter the moving average, the sooner you’ll see an actual change in the market.

The New York Stock Exchange Advance/Decline line (NYAD) also has been rising, indicating greater breadth.

The NYAD shows the number of advancing stocks minus the number of declining stocks. When major indices such as the S&P 500 are rising, a rising NYAD confirms the uptrend (and, of course, vice versa).

The CBOE Volatility Index (VIX), aka “fear index,” has been falling and sits below 13, indicating a decline of stress and uncertainty in the markets. As a rule of thumb, VIX values greater than 30 generally show heavy volatility resulting from increased risk and fear.

High hopes for earnings…

The onset of second-quarter 2024 earnings season has brought with it high expectations. For Q2, the S&P 500 is expected to rack up year-over-year earnings growth of 8.8%, the fastest pace since Q1 2022.

This robust earnings growth is projected to be broad-based, with eight out of the eleven sectors on track to report increases. The broadening of earnings performance is particularly important because it suggests that sectors which have lagged behind, such as industrials and consumer staples, may begin to catch up with the technology and communications services sectors that have been leading the market.

This diversification in earnings growth can create a more balanced market, reducing the reliance on a few high-performing sectors and spreading the potential for gains across a wider array of industries. Such a shift can enhance the overall sustainability of market growth.

The combination of easing inflation, strong earnings growth, and a cooling yet stable labor market creates a conducive environment for the stock market to thrive in the second half of 2024.

The week ahead…

The following key economic reports are scheduled for release in the coming days:

Fed Chair Jerome Powell speaks (Monday); U.S. retail sales, business inventories, home builder confidence index (Tuesday); housing starts, building permits, Fed Beige Book (Wednesday); initial jobless claims, Philadelphia Fed manufacturing survey, and U.S. leading economic indicators (Thursday).

Throughout the week, various Fed officials are scheduled to speak. Their words have the power to move markets, so stay vigilant.

Keep your emotions in check, stay diversified, and…take the sensationalism of TV news with a grain of salt. When you see the “Breaking News” chyron, I suggest you hit the mute button.

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