Stocks drifted higher in the first half of the quarter. Then came September, when the S&P 500 fell 4.9 percent and the broader market fell even more. In periods like this the negative news is overwhelming and it seems nothing can push the market higher. But we’ve seen that before. Stocks were also down in September 2020, 2021, and 2022 with an average loss of six percent. But they rose in the fourth quarter after each of those declines with an average gain of ten percent. Good-riddance September.

There are reasons for some concern, but they didn’t suddenly appear in September. Some, rising debt levels for example, have been clear for years. Same for deficits and high government spending. Three words also became a problem: “higher for longer.”

The Fed’s Jerome Powell, in so many words, said what investors took to mean that interest rates need to be higher for longer. What does that mean? Rates have been rising from literally zero to 5.5 percent. Is that level the higher one Powell was talking about, a level that will stay longer? Or do rates need to go higher from here? And what constitutes longer? Six months? A year? Fed chairs have a history of being cryptic and vague…and often wrong. Powell is no exception. The fear that many had early in the year was that the Fed that kept rates too low for too long would keep them too high for too long. We will soon see.

Apart from Fed policy, economic forecasters and to some extent all investors have had to deal with several factors that will impact profits and the markets. One is the strike by auto workers and its negative impact on production and consumer spending. Expect more strikes as workers whose real incomes have fallen since 2019 demand raises. Another factor is the resumption of student loan payments, which will also undercut spending as 40 million people start payments. Add to that a new war in the Middle East.

Even in this environment I can make a case for stocks and bonds, both of which are at least fairly valued if not undervalued. Inflation is falling. The Fed has a two percent target but those are only words. Historically, inflation has rarely been that low. The Fed is either done or is at least nearly done. Long-term rates are near a peak. Investors look forward. The market will rally long before conditions improve.

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.