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PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz1odHRwczovL3N0YXRpYy5teWZpbmFuY2UuY29tL3dpZGdldC9teUZpbmFuY2Vfdmlld3BvcnRfZGV0ZWN0aW9uLmpzPjwvc2NyaXB0PjxzY3JpcHQgYXN5bmMgdHlwZT0idGV4dC9qYXZhc2NyaXB0Ij5teWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMTInKTtteWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMScpOzwvc2NyaXB0Pg==Anna-Louise Jackson is a financial journalist with more than a decade of experience reporting on investments, retirement and other areas of personal finance. Her writing has appeared in Bloomberg Businessweek, Bloomberg News, CNBC, MarketWatch, Forbes Advisor, and Buy Side from WSJ, among many other publications. She was previously the lead investing writer for NerdWallet.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.Optimism that the U.S. economy will achieve a soft landing has helped firm up a rally in the stock market that’s sent prices soaring in recent months. July marked another month of gains in a year that’s, so far, proving wrong those calling for an imminent economic slowdown �� and even Federal Reserve policymakers are no longer forecasting a recession.The major gauges for the U.S. stock market all closed higher in July, marking some milestones along the way. The Dow Jones Industrial Average posted 13 straight days of gains, matching a 1987 record, as it rose 3.3% in the month. The S&P 500 notched a 3.1% gain, and it closed out the month about 200 points below its all-time high. And finally, the Nasdaq Composite Index jumped 4%, as its January-July gains of 37% marked the best since 1975. Bullish sentiment on Wall Street indicates there’s more conviction that the Fed’s efforts to tame inflation didn’t come at the expense of the economy. As widely expected, policymakers raised a key benchmark rate at its July meeting, to a range of 5.25% to 5.5%. That marks the highest level since 2001. Meanwhile, gross domestic product (GDP) rose at a 2.4% annual rate in the second quarter, when adjusted for inflation, which marked a faster-than-expected acceleration from the prior quarter. August could live up to its “very boring�� historical reputation, particularly since Fed policymakers don’t convene this month, earnings season hasn’t brought many surprises, and there’s typically a significant decline in trading activity thanks to vacationing Wall Street types, notes Scott Ladner, chief investment officer at Horizon Investments. That said, Fed policymakers left the possibility of another rate hike on the table for September, so expect the attention to be on inflation-related economic reports. “It’s the same story for August and September, which is a continued focus on whether inflation is durably coming down.”Here’s what to watch in the month ahead, and how to invest in August and beyond.Stock market outlook: the importance of earnings season The multi-week period known as earnings season, when publicly traded companies release financial results for the most-recent quarter, will conclude in August. The month begins with the busiest week of what’s been shaping up to be a pretty average earnings season �� in a good way. Slightly more than half of the companies in the S&P 500 Index have reported results, of which 80% beat analyst estimates for earnings, according to FactSet. These results indicate consumer spending remains resilient, while fundamentals support stock valuations, Ladner notes. “It’s been a very boring earnings season so far, and that’s just fine.”But don’t ignore the tail end of earnings season just yet, notes Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. That’s because there isn’t yet an all-clear on the economy �� and corporate leaders have been wrestling with lingering concerns about the macroeconomic backdrop, he adds. Companies don’t necessarily want to pull back on investments, for example, but need to know what continuing with such spending plans will mean if the economy does enter a recession, VanCronkhite says. Likewise, while consumer demand remains strong, companies must decide how much, if any, power they have to raise prices, he adds. “I think this is an important earnings season.”The market, like the Fed, remains data-dependentDuring the press conference following the central bank’s July meeting, Fed Chair Jerome Powell outlined the economic reports that policymakers will watch ahead of September. That list includes two monthly employment reports and two monthly consumer price index (CPI) reports. This month, expect the July jobs data on Aug. 4, followed by the CPI report for July on Aug. 10. Powell promised that “all of that information is going to inform our decision�� for the next rate meeting, so market participants will likewise monitor the same data to gauge whether central bankers will raise rates again in September or hold steady �� both options that Powell indicated are possible.“The market, like the Fed, is data-dependent right now,�� says VanCronkhite. While the consensus on Wall Street is that another rate hike isn’t likely next month, any economic reports that suggest one is warranted could make September a “live�� meeting �� and thereby increase the potential for market volatility in the interim, he adds. A rate cut, on the other hand, isn’t likely for quite some time, Ladner says. “The hurdle to cut rates is probably impossibly high right now,�� he adds.Still, pockets of the economy continue to require close attention. While tempering the rate of inflation remains top-of-mind for central bankers, they must also monitor the implications that decades-high interest rates have on the housing market and stock prices, Ladner says. Expectations for the economy are now so elevated that any data that calls into question the potential of a “soft landing�� could create market turmoil, VanCronkhite adds. In the labor market, that might include a spike in corporate layoffs or a rising number of people filing for unemployment benefits, while it could also be signs that “little nicks here and there�� are worsening for consumers, such as a more pronounced increase in car loan delinquencies or signs people are running out of their savings, he notes.Finally, even though it’s not a policy meeting, Federal Reserve personnel will convene in Jackson Hole, Wyoming, for an annual summit in late August. Neither Ladner nor VanCronkhite expect any major announcements about a shift in policy then, though they say the symposium could offer an opportunity for central bankers to tout their success in fighting inflation or offer hints about the September meeting. “It has the potential to be interesting,�� Ladner says. How to invest in August and beyondIf this August is like past Augusts, there’s a risk of higher volatility during a month that historically sees less liquidity. But VanCronkhite cautions investors to be wary of inferring too much on past trends. “If recent history is any indication, we should not rely on traditional seasonal patterns in terms of what we can expect,�� he says. “Things rarely seem typical recently.”Along those lines, VanCronkhite says future rate policy could play out much differently than in the past. In particular, the Fed isn’t likely to cut interest rates quickly whenever it does so, nor keep rates near-zero as it did in the wake of the financial crisis. That’s why he recommends adding to your portfolio shares of companies that have embedded demand or benefit from secular growth, including areas of the insurance, industrials, and consumer staples sectors. “Look for businesses that are less reliant on the Fed to drive their demand.�� Finally, with the economy seemingly on more solid footing, now may be a good time to “embrace the more cyclical parts of the market,�� Ladner says. That includes small-cap stocks and sectors leveraged to economic growth, such as materials or energy, he adds. “If it becomes even more clear that a recession is less likely than more likely, those parts of the market that haven’t participated as much in the rally probably need to play a bit of catch up.�� Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was first published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at [email protected].