As we move into September, it’s beginning to look like we could see a strong year-end run for stocks.

First, the economy looks very healthy at the moment.

Last week, I wrote about how a recession this year is increasingly unlikely. I pointed out that the economy continues to create jobs (albeit at a slower pace than earlier in the year), new claims for unemployment insurance continue to fall, American consumers continue to spend money, and inflation continues to moderate.

Best of all, I noted that corporate earnings are at an all-time high. And that looks like it will continue into next year.

Industry analysts predict the S&P 500 will report year-over-year earnings growth of 11.3% this year and a whopping 14.4% in 2025.

It’s relatively rare to see two consecutive years of double-digit earnings growth for this group of companies…

The only times it happened in the last 15 years were in 2010-2011 and 2017-2018.

And of course, the stock market is forward-looking – usually about six months into the future, give or take a few months. So investors will be incorporating this expected profit growth into share prices over the next few months.

Cuts Are Coming…
But there has been additional data and developments since my article last week… most of them very positive for stocks.

First, the Atlanta Federal Reserve’s GDP prediction model sees economic growth of 2% for the current quarter. That’s not stellar by historical measures, but it’s still very solid. In fact, it reinforces the “soft landing” scenario I’ve written about in the past – that the Fed has been able to cool the economy just enough to moderate inflation but not enough to start a recession.

Also, mortgage rates continue to fall. The average rate on new 30-year fixed-rate mortgages has declined from 7.9% last October to under 6.5% last week.

This is extremely important. Consider that the housing industry – which ranges from homebuilders, financial firms, and brokers all the way to retailers like Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) – accounts for almost a fifth of the economy, depending on how you measure it. And the industry has been depressed, due to higher rates triggered by the Fed’s monetary tightening over the past 2 1/2 years.

But perhaps best of all, the Fed is poised to begin cutting rates directly after the September 17-18 meeting of its committee. Chairman Jerome Powell confirmed this last Friday at the Fed’s annual central banking conference held in Jackson Hole, Wyoming. Fed watchers are calling his speech “unambiguously dovish,” which means he apparently sees the need for multiple interest rate cuts in coming months.

And indeed, futures markets are now pricing that in. Traders see a 70% likelihood that the Fed’s target rate will be at least one percentage point lower by the end of the year…

Finally, I’ll add one last reason the market is set up for a strong finish to the year: historical patterns.

According to the Stock Trader’s Almanac, fourth quarter market gains have been the largest and most consistent over the years. Gains for the S&P 500 have averaged 4.2% during the fourth quarter since 1949 – much better than the first quarter (2.1%), the second quarter (1.8%), and the third quarter (0.8%).

Why has the fourth quarter been so strong over the years? The Almanac cites the approaching holiday season, which creates positive market psychology. In addition, investing professionals drive the market higher as they make portfolio adjustments to boost their year-end performance numbers.

Yes, there are also risks that can’t be papered over. We have an election looming, in which both sides will likely cry foul if they lose. That could create societal upheaval and unhappiness… and perhaps greater market volatility.

And geopolitical tensions – in Ukraine, the Middle East, and the South China Sea – are growing and threaten to draw the U.S. in.

There are always risks, and smart investors account for them. But if I have to decide whether to be in the market or out of it right now, consider me all in.

— Matt Benjamin

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Source: Wealthy Retirement