The tech titans are flexing their muscles, dragging the market back to its feet and giving the bears a reason to stay in hibernation…at least for now.

The major U.S. equity averages have been in a slump so far this month, in keeping with the seasonal “September Effect.” Stocks took a beating last week.

However, as this week draws to a close, stocks are starting to show new vigor, powered by a technology sector resurgence. We’re witnessing greater volatility, as investors toggle between caution and enthusiasm. But through it all, the bull market remains alive.

Mega-cap stocks, particularly beleaguered chipmaker Nvidia (NSDQ: NVDA), have rebounded, rekindling optimism around artificial intelligence (AI). This renewed fervor has fueled fresh buying, pushing not just tech stocks but also the communication services and consumer discretionary sectors higher.

Volatility is back, but encouragingly, dips have been brief, supported by a solid overall outlook.

The S&P 500, despite a few hiccups in April, August, and early September, has gained over 17% year-to-date, a testament to the underlying strength keeping the market on an upward trajectory.

Lies versus truth…

Economic growth remains on track, inflation is falling, corporate earnings have been strong, the jobs market is decelerating but still robust, and monetary policy is about to get looser.

That’s why, when I hear a politician rant and rave about the awfulness of the U.S. economy, I have to scratch my head. But then again, I shouldn’t be surprised by demagoguery, especially during an election season. Pols get away with brazen lies because low information voters don’t know the difference.

But the empirical evidence doesn’t lie. Wednesday’s consumer price index (CPI) data revealed inflation is still on a downward path. The pace of that decline has been slower and more erratic than many had hoped, but the trend is clear: inflation is heading down.

To be sure, recent softening in the labor market has raised concerns that economic growth may be slowing. However, the national unemployment rate hovers at 4.2%, its lowest point since 1969, when Richard Nixon (remember him?) occupied the White House.

Facing a multitude of legal problems that eventually forced him from office, Nixon famously declared: “I’m not a crook.” Some things never change.

The importance of underlying fundamentals never changes, either. Right now, those fundamentals are solid.

Thursday brought more good news with the release of last week’s initial jobless claims and the producer price index (PPI) for August.

Jobless claims ticked up slightly to 230,000, just above the prior week’s numbers but still below the six-week average. This was the second-lowest figure since June, a positive sign for investors worried about weakening consumer demand.

The PPI report also offered some relief, showing that producer prices rose only 0.2% compared to the previous month. This moderation in input costs should help keep consumer prices moving in the right direction.

The Fed takes center stage…

Now, all eyes turn to the Federal Reserve’s meeting next week. The consensus is that a rate cut is coming, with a 25-basis-point (0.25%) reduction seen as the most likely move. However, for those hoping for a more aggressive 50-basis-point (0.50%) cut, this week’s CPI data likely quashed those expectations.

The CME Group’s FedWatch tool, as of September 13, currently indicates a 57% chance of a rate cut of 0.25% (see chart).

Source: CME Group

Regardless, a more modest quarter-point cut would still be positive. It would kick off a more relaxed monetary policy, suggesting a broader trend of easing without tipping into full-blown stimulus.

Fed restraint signals that the economy isn’t deteriorating to a point that requires drastic action. Wall Street would be heartened by dovishness combined with caution, because cutting rates too much, too fast could let the inflation beast out of its cage.

By avoiding overly aggressive cuts, the Fed reduces the risk of overheating the economy and reigniting inflationary pressures.

We’ll know more on September 18, when the policy-making Federal Open Market Committee (FOMC) concludes its meeting and makes its announcement on the benchmark federal funds rate.

In the meantime, the main U.S. stock market indices closed higher Friday as follows:

• DJIA: +0.72%
• S&P 500: +0.54%
• NASDAQ: +0.65%
• Russell 2000: +2.49%

Small caps surged as economic optimism gained traction. The main indices notched a winning week.

The green rush…

Amid the bullish but volatile conditions I’ve just described, are you looking for an alternative growth opportunity? I suggest you consider marijuana.

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Jim is the chief investment strategist of our flagship publication, Personal Finance. He tells me that this particular company is the biggest win-win opportunity he’s ever seen in the marijuana market.

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John Persinos is the editorial director of Investing Daily. You can reach John via mailbag@investingdaily.com

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