Like millions of my fellow Americans, I watched President Biden’s Oval Office speech this week, in which he explained his departure from the 2024 race. Afterwards, I listened to the television pundits as they delivered their characteristically superficial analysis.

Last night’s depressingly familiar TV experience reminded me of a phrase that I once heard MIT professor Noam Chomsky utter at a symposium at Boston University, when I was attending BU during the Carter era.

Chomsky told this gathering of long-haired students (and this is an exact quote, taken from my yellowed notes): “The overriding goal of the corporate-owned media is to manufacture consent.” Chomsky’s brilliant turn of phrase, “manufacture consent,” has stuck with me ever since.

Today’s column isn’t intended as a political opinion piece. That’s not my job. But it is my job to urge you to think for yourself as an investor. I consider politicians, even the president of the United States, to be the hired help of the financial and corporate elite.

These public sector administrators come and go; the media’s coverage of politics is largely an attempt to keep the rest of us in line. Fun fact: The richest 1% of the population own half the world’s wealth. This cozy club also owns the highly concentrated media.

Worried about how the 2024 presidential election will affect your portfolio? The stakes are high for certain cultural issues. But when it comes to your money, I suggest you control your emotions. As one of my favorite rock groups, The Who, sang: “Meet the new boss, same as the old boss.”

My point? When making investment decisions, ignore the yabbering of the political press and stick to the underlying fundamentals and technical indicators.

Here endeth the lesson. (Send all hate mail to: mailbag@investingdaily.com.) Now let’s do the numbers. Politicians may lie, but the math doesn’t.

A Healthy Reset and a Prime Buying Opportunity

On Wednesday, major equity indexes experienced significant declines, with the S&P 500 falling 2.31%, its steepest drop since December 2022, and the tech-heavy NASDAQ plunging by 3.64%.

The primary catalyst for this downturn was disappointing earnings reports from two of “Magnificent Seven” stocks, Alphabet (NSDQ: GOOGL) and Tesla (NSDQ: TSLA), which have been pivotal in driving market gains this year.

Across the Atlantic, corporate earnings also fell short of expectations, contributing to the market slump. Shares of luxury goods giant LVMH (OTC: LVMHF) hit a six-month low, a signal that sputtering economic growth in China is dampening luxury spending. The “communist” Chinese love their bling; when they stop buying gold and handbags, it exerts a ripple effect on the global economy.

Similarly, Deutsche Bank (NYSE: DB) shares have been under pressure after the bellwether international bank reported its first quarterly loss in four years and paused its share repurchase program.

Despite the broader market’s risk-off sentiment, U.S. small-cap stocks have continued their recent trend of outperforming their large-cap counterparts. Bonds have remained relatively stable.

Elevated Expectations for Mega-Cap Tech

In the coming weeks, over half of the S&P 500 companies are set to report their earnings, shifting focus from the personal health of Joe Biden and Donald Trump to the financial health of corporate America.

The outlook for second-quarter earnings remains optimistic, with S&P 500 earnings growth projected to accelerate from 6% in the first quarter to approximately 10% in the second.

However, expectations are higher this time, particularly for the “Magnificent Seven” stocks that have driven much of the year’s gains (see chart).

Analysts forecast a cumulative 30% profit increase for these seven companies, outpacing the broader market as they have consistently done for the past five quarters. Yet, given their elevated valuations, investors are particularly sensitive to any shortcomings in earnings reports and forward guidance.

For instance, despite strong results, Alphabet’s stock fell more than 5% Wednesday due to higher spending on artificial intelligence (AI).

AI is anticipated to grow rapidly over the next decade, boosting earnings for companies investing heavily in its development today. However, as comparisons from a year ago become tougher and earnings growth from other sectors starts to improve, market leadership is broadening. This shift will further fuel the sector rotation that has been emerging in recent weeks.

Supportive Economic Backdrop

The latest business activity indices (e.g., S&P Global PMIs and U.S. gross domestic product growth) indicate that global growth remained steady in July, aligning with a better-than-average pace of expansion.

While there are signs in the U.S. of a cooling labor market and economic growth, inflation also is moderating. This trend should enable the Federal Reserve to start reducing interest rates, achieving a soft landing for the economy.

Given the rapid and significant rally in the first half of the year, markets are likely to experience more volatility in the near term. However, as long as the economy avoids a recession, inflation continues to decrease, and the Fed gradually eases its policies, any market pullbacks should be seen as buying opportunities, particularly in equities and bonds.

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This article previously appeared on Investing Daily.