A Turbulent Month Shows Markets Are Fickle. So Be Patient.

The stock market not only has recovered from its tantrum of early August, it is behaving as though that downturn never happened.

Stocks have been rallying joyfully. With the political conventions behind us and the Federal Reserve expected to trim interest rates next month, many Wall Street strategists have reined in their nervousness about a possible recession and are betting instead on good times to come.

There are compelling reasons for the bullishness. Inflation has been subdued, and data on retail sales and jobless claims suggested that the economy remains in good health. Corporate earnings — which fuel the market — have been outstanding. Executives in earnings calls with Wall Street analysts say they are cautiously optimistic, both about the economy and their companies’ abilities to continue reaping profits.

Fed officials are meeting at Jackson Hole in Wyoming for their annual, informal conclave on the economy, but the markets are focused on the next formal policymaking session in Washington in September. The Fed is expected then to begin cutting interest rates, which have stood at 5.25 to 5.5 percent since July 2023. Lower rates are typically ambrosia for market traders.

What’s more, as the year goes on, the political calendar may become more favorable for the stock market, which has been largely indifferent to the twists in the presidential race so far. Historically, regardless of who wins or loses, the market has tended to rally once the outcome of an election seems a sure thing.

In essence, there are plausible arguments for why the market will continue to head higher. Yet I’m not jumping onto this bandwagon — or embracing any strong view on where stocks are going.