The surest way to make money over the long haul is to control your emotions and see the world the way it really is, not the way you want it to be. Dispassionate analysis, not wishful thinking, is the true path to investment wealth.

The hard facts about inflation will once again occupy center stage this week. If you listened to some politicians, you’d think America was currently plagued by out-of-control inflation. These bogus arguments have persisted, despite rapidly diminishing price increases.

As Mark Twain once said: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

The U.S. consumer price index (CPI) is due Thursday, and the producer price index (PPI) is due Friday. Both data sets will be for the month of July, and Wall Street expects to see further disinflationary signs. The most recent CPI and PPI numbers for June have shown markedly falling inflation, suggesting that monetary tightening will soon end.

Liquidity is the lifeblood of the markets, and when the Federal Reserve finally pauses and then cuts rates, stocks should soar.

Despite cooling inflation, the overall economy is holding its own. The recent rebound of the Dow Jones Industrial Average is a sign that the economy is surprisingly vibrant and the breadth of the equity market rally is broadening.

Technical vs. fundamental…

Technical analysis, or chart work, is a trading tool used to evaluate stock prices to forecast their future movement. Statistics and data from trading activity, such as price movement and volume, are analyzed to help foresee the next leg of prices.

As a fundamental analyst, I spend most of my time analyzing the financial statements of public companies and researching industry trends that drive their numbers. I don’t put a lot of emphasis on technical work, but that school of thought is worth heeding. I believe that a hybrid approach, combining fundamental with technical analysis, works best.

One technical tool that I’ve often referred to in Mind Over Markets is the moving average.

The moving average represents the average closing price over the past designated time frame. This tool gives us a clue as to whether the trend is up or down; it also identifies potential support or resistance areas. The moving average is a great line to judge whether a stock or index is technically healthy.

As the following chart shows, the S&P 500 currently hovers above its 50- and 200-day moving averages, as of market close August 7:

Corporate earnings season is where the rubber hits the road, and on that fundamental score, the picture has steadily improved.

For the second quarter of 2023, with 84% of S&P 500 companies reporting actual results, 79% of S&P 500 companies have reported a positive earnings surprise and 65% have reported a positive revenue surprise. The blended year-over-year Q2 earnings decline for the S&P 500 is -5.2%. “Blended” combines actual with projected results. This data comes from research firm FactSet.

If -5.2% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q3 2020, at -5.7%. However, the projected earnings decline last week was 7.4%, which means operating results are incrementally improving. Indeed, analysts project a return to profitability in Q3 and Q4.

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At this latter stage of the Q2 earnings season, both the number of companies reporting positive earnings surprises and the size of these earnings surprises are above their 10-year averages.

As of this writing, 84% of the companies in the S&P 500 have reported actual Q2 results. Among these companies, 79% have reported actual earnings above estimates, which is above the 5-year average of 77% and above the 10-year average of 73%.

Eight of the 11 S&P 500 sectors are reporting year-over-year earnings growth, led by the consumer discretionary and communication services sectors. Three sectors are reporting a year-over-year decline in earnings: energy, materials, and health care.

As market-moving inflation data looms, the main U.S. stock market indices closed lower Tuesday as follows:

• DJIA: -0.45%
• S&P 500: -0.42%
• NASDAQ: -0.79%
• Russell 2000: -0.59%

My long-term outlook remains bullish, but maybe you’re tired of overpaying for the excessively valued “story stocks” that get touted on CNBC. You should know that my colleague Jim Pearce has unearthed a “piggyback” profit play that lets you tap into the growth trajectory of Wall Street’s top stocks, without actually buying them.

Jim Pearce is chief investment strategist of our flagship publication, Personal Finance. Jim has pinpointed an under-the-radar company that the mega-cap tech giants can’t live without.

This piggyback play is deeply entrenched in the artificial intelligence market (size: $2 trillion by 2030)…electric vehicles ($693 billion by 2030)… and cloud computing ($2.3 trillion by 2032). The time to buy this stock is now, before the rest of the investment herd finds out and sends its share price into the stratosphere. To learn the details, click here now.

John Persinos is the editorial director of Investing Daily.

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