Soft Inflation Report Tees Market Up for Sizable Gains

With the release of this morning’s inflation report, the last piece of the current economic puzzle has now fallen into place. And it’s got the stock market buzzing with enthusiasm – for good reason.

Indeed, July’s personal consumption expenditures (PCE) data revealed that the core PCE Price Index — a key measure of inflation that excludes volatile food and energy prices — held steady at 2.6% year-over-year. 

That number confirms that inflationary pressures continue to moderate toward very healthy levels. With that in mind, investors are growing very confident that the Federal Reserve will finally cut interest rates next month. 

Such a rate cut should be the first of many that come over the next year. All those cuts should help the economy regain meaningful strength. And anticipation for that bullish outcome will likely support stocks for the foreseeable future.

But today’s encouraging inflation report isn’t alone in supporting stocks as we push into September.

Inflation and Earnings: The Bullishness Propelling Stocks Higher

Adding fuel to the market’s optimism is Nvidia’s (NVDA) stellar earnings report, released this past Wednesday. 

The semiconductor giant posted revenues and profits that blew past Wall Street’s estimates, driven by surging demand for its cutting-edge AI chips. Nvidia’s results underscore the tech sector’s central role in the current market rally. Moreover, they serve to highlight this massive AI investment cycle’s enduring strength, confirming that the AI Boom is alive and well.

Now, historically, September has been a volatile month for stocks. But in our experience, fundamentals trump seasonality. And the combination of easing inflation concerns and robust earnings will likely buck this seasonal trend.

Investors are now looking ahead to key economic data releases and corporate earnings reports with renewed optimism. Should the trend of moderating inflation continue – and if other tech companies follow Nvidia’s lead in delivering strong results – we believe the market could see a sustained period of robust gains.

That is exactly what we expect to happen.

The Final Word

We believe that the Fed’s September meeting could prove to be a watershed moment. It’s widely expected that the central bank will cut interest rates for the first time since the “COVID Crash” of early 2020. Not to mention, most investors anticipate that it will also cut rates at every meeting over the next year.

And America needs those rate cuts.

Just look at Dollar General (DG). The discount retailer’s stock just suffered its worst single-day crash in history. Why? Because its earnings revealed that lower-income Americans are buckling under the pressure of high rates. 

On Dollar General’s quarterly conference call, management talked at length about how its core customers are maxing out credit cards, missing bill payments… just struggling in general.

So, let’s help them out, Fed. Let’s cut rates, reinvigorate our economy – and blast stocks to new highs.

Now, of course, not every stock is sporting spectacular upside potential right now. But thanks to the market volatility we endured earlier this month, we’ve homed in on a few picks that could really soar over the coming months.

Check out our favorite stocks to buy right now.

_{On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.}

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