Through the first half of the year the market advance was very narrow with just a few technology stocks pushing the S&P 500 higher. Thankfully, that has changed. In the third quarter sectors like Real Estate and Financials trounced the technology stocks. Utilities were the strongest sector rising 20 percent. I never thought Utilities would ever lead in a bull market!

Broad stock participation reflects a healthy market and it ended our fear that a market top was forming. Plus, there was very little volatility with the market advancing in ten of the last eleven months.

Why so strong? Tamer inflation, a resilient economy, and the start of a new cycle of interest rate cuts. First inflation: The Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), rose 2.2 percent in August from a year earlier. That’s very close to their 2 percent target. At the 2022 peak, PCE was rising 7.2 percent.

With the improvement in inflation, the Fed has shifted its focus to the weakening U.S. labor market. The unemployment rate rose to 4.1 percent, up from 3.7 percent at the start of the year. As a result, the Fed cut interest rates in September and could lower rates by 25 basis points every meeting for the next six months.

Soft landings (periods in which higher rates reduce inflation without causing a recession) are hard to achieve. The Fed has only achieved a soft landing twice since World War II, but most economists expect they will do so this time. But there’s a caveat: many economic forecasts have been wrong. Very wrong. Now economists say there’s a 30 percent chance of a recession next year. Whatever.

In spite of several positives, many people remain nervous. I understand investors’ trepidation. There is the threat of a widening Middle East war and and Hurricane Helene. Add to the list debt and deficits. All of these are headwinds for the economy. Plus, this is October!

At the same time, the economy is growing at about three percent and the Fed’s preferred inflation measure is just above two percent, which is the Fed’s inflation target. Add to that the new cycle of Federal Reserve interest rate cuts and you have a tailwind for the market that will continue into next year. Yes, there are reasons to worry, there always are, but the positives outweigh the negatives. As I wrote in my July article, “What’s Not to Like?”

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.