I contend that investors have overreacted to media noise, losing sight of the bigger picture. Recession alarms are overblown. Inflation has been curbed. And no, Haitian immigrants aren’t coming to eat your pet.

Overall economic growth is on track, corporate earnings are robust, the unemployment rate hovers at a 55-year low, inflation has reached a three-year low, and we’re about to get looser monetary policy. And yet, despite these favorable conditions, investors are anxious and volatility has spiked.

The stock market lately has been on a rollercoaster ride, with investors gripping their armrests as fears of a cooling economy trigger sudden drops. But the bigger picture looks a lot rosier. Although we’ve endured a few scary sell-offs, stocks have posted impressive gains, inching closer to record highs.

Yes, volatility has gotten more intense, but the broader market trends offer a much clearer picture.

Despite a few hiccups, inflation as measured by the consumer price index (CPI) and producer price index (PPI) has been trending downward. The Federal Reserve is widely expected to kick off an extended series of interest rate cuts this week, which should shore up the bull market in the months to come.

Wall Street is betting that at the conclusion of its September 17-18 meeting, the central bank’s policy-making Federal Open Market Committee (FOMC) will cut the benchmark federal funds rate by 0.25%.

Which is not to say the way forward has been smooth. The Dow fell 1,034 points on August 5, and then over the next six days climbed 1,062 points. Over the following few weeks, the Dow tacked on another 2,000 points, followed by a decline of 1,000 points from August 29 to September 6. Then last week, on September 11, the Dow posted an intraday swing of 910 points, rising by that magnitude in only a few hours. It’s enough to give an investor whiplash.

These gyrations have been caused by various blips in economic reports, mostly in the form of missed expectations within data subsets. For example, the early-August sell-off was precipitated by a jobs report showing a slowdown in hiring growth. Investors reacted badly, forgetting that headline unemployment fell in August to an historically low 4.2%.

Growth (not Fluffy) is on the menu…

Compounding the anxiety has been the sheer insanity of political rhetoric during this election season. In a now infamous moment during the last presidential debate, GOP candidate Donald Trump shouted about Haitian immigrants: “They’re eating the dogs! They’re eating the cats!”

My cats have been nervously eyeing the television ever since. The only thing in danger of being eaten? Your profits, if you panic at lurid headlines. And now comes word this past weekend that Trump was the target of another assassination attempt, which is no joke. The news cycle toggles between comedy and tragedy.

But fixating on the media cacophony and the market’s short-term ups and downs will make you queasy. Instead, take a broader view and see the positive trends that are underpinning the stock market rally. Future pullbacks should be seen as opportunities, not omens.

Under these conditions, buying on dips is well justified. Legendary value investor Benjamin Graham put it best:

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.

Despite wild price swings, the main equity averages in the U.S. and overseas finished last week in positive territory, as the following chart shows:

Falling Treasury yields and renewed enthusiasm over artificial intelligence (AI) have driven the tech-heavy NASDAQ sharply higher.

As for the Fed, while futures markets briefly flirted with the idea of a bigger 50-basis-point cut, level-headed investors never bought into that hype. A more modest 25-point cut seems far more likely. The solid shape of the labor market and broader economy just don’t warrant a drastic policy shift.

Inflation has come a long way down from its peak in 2022. This steady progress has given the Fed enough breathing room to begin easing off the gas pedal on restrictive monetary policy.

The path forward might not be perfectly smooth, but it’s looking increasingly positive for both inflation and markets.

The week ahead…

Here are the major economic reports and events scheduled for the coming days:

U.S. retail sales, industrial production, business inventories, home building confidence index (Tuesday); housing starts, building permits, FOMC interest rate decision, Fed Chair Jerome Powell’s press conference (Wednesday); initial jobless claims, Philadelphia Fed manufacturing survey, existing home sales, U.S. leading economic indicators (Thursday).

Powell’s remarks on Wednesday should provide clues about the Fed’s future intentions, probably underscoring the likelihood that the Fed’s cut this week won’t be the last.

As Wall Street awaits the Fed’s big decision, the main U.S. stock market indices closed mostly higher Monday, with the Dow touching an all-time high and the S&P 500 edging towards a record. The trading session’s final tally:

• DJIA: +0.56%
• S&P 500: +0.13%
• NASDAQ: -0.52%
• Russell 2000: +0.31%

The benchmark 30-year U.S. Treasury yield continued its decline, falling 1.01% to settle at 3.93%. However, the CBOE Volatility Index (VIX), the so-called “fear gauge,” jumped 3.38% to reach 17.12. Buckle up and keep an eye on the long-term horizon.

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John Persinos is the editorial director of Investing Daily.

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