Welcome to my latest video presentation. Below is a condensed transcript, edited for concision. For additional details and several charts, watch my video.

At the annual Jackson Hole, Wyoming economic symposium last week, Federal Reserve Chair Jerome Powell delivered a speech that sent shock waves through the financial markets.

Strongly suggesting an interest rate cut is imminent, Powell’s message resonated with investors who are now fully pricing in a reduction when the policy-making Federal Open Market Committee (FOMC) meets on September 17-18.

The CME Group’s FedWatch tool indicates that Wall Street is betting on a rate cut next month. This anticipated move marks a significant shift in the central bank’s stance, providing a catalyst for further market growth.

Stocks finished last week in positive territory and currently hover near all-time highs. The Dow Jones Industrial Average, S&P 500, NASDAQ, and Russell 2000 are all trading well above their 20-, 50-, and 200-day moving averages, reflecting robust momentum.

The DJIA’s ascent signals optimism over economic growth, as industrials and other cyclicals stand ready to benefit from lower rates. The S&P 500 has been on the rise as well, a sign that the broader market is benefiting and not just a handful of technology mega-caps. That said, the NASDAQ also hovers near record highs.

The Russell 2000 has been exhibiting similar momentum, a clear indication of economic verve. Small caps tend to perform well when the economy is thriving.

Healthy market breadth is confirmed by the rise of the New York Stock Exchange Advance/Decline line (NYAD). The rise of the NYAD signifies that more stocks are advancing than declining, pointing to a healthy and broad-based rally (see my video for charts).

A market rally with strong breadth is typically more sustainable, indicating that the upward momentum is not confined to a few sectors but rather spread across the market.

The optimism surrounding a potential rate cut has had ripple effects across various asset classes, notably crude oil. With expectations of a stronger economy and increased energy demand, oil prices have spiked.

Investors believe that lower interest rates will stimulate economic activity, leading to higher consumption of energy and commodities. This boost in oil prices also reflects broader confidence in the economy’s resilience, further bolstered by strong corporate earnings reports.

The Political Circus

It is a critical mistake for investors to let political rhetoric dictate their market strategies. A perfect example is former President Donald Trump attributing a one-day stock market slump to what he termed the “Kamala Crash.” The markets strongly rebounded the very next day, illustrating the folly of making knee-jerk reactions based on political headlines.

The key to successful investing, especially during a tumultuous election season, lies in adhering to technical indicators and solid fundamentals.

The fundamentals remain strong. Corporate earnings for the S&P 500 are projected to come in at a robust 10% growth for Q2 2024, underscoring the health of American corporations.

Meanwhile, inflation, as measured by the consumer price index (CPI), has been on a downward trend. The upcoming release of the personal consumption expenditures (PCE) index on Friday, August 30 will be crucial. The PCE is the Fed’s preferred inflation gauge, and if it shows a continued decline, it will further solidify the case for a rate cut next month.

The Week Ahead

The following economic reports are scheduled for release in the coming days and they warrant close scrutiny:

Durable goods orders (Monday); S&P Case-Shiller home price index (Tuesday); initial jobless claims, pending home sales (Thursday); PCE and consumer sentiment (Friday).

Given Powell’s statements and the market’s current trajectory, the bull case is firmly intact. Investors would be wise to position their portfolios to benefit from economic expansion and lower interest rates.

Sectors that typically outperform in such an environment include industrials, small caps, technology, utilities, and real estate. These areas are poised to capitalize on increased economic activity and the positive impact of cheaper borrowing costs.

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Jim Fink is the chief investment strategist of Options for Income. Every week, he’ll send you easy-to-follow instructions that’ll put you on Wall Street’s payment list. You’ll get the money right away, up-front, in your trading account. Want to earn life-changing income? Click here.

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.