A lot is going on this week.

The Federal Reserve is going to make another interest rate announcement this Wednesday.

The earnings season continues, with more publicly listed companies scheduled to publish their second-quarter operating reports during the coming days.

Here at the Financial Star, we are focused on the bigger picture.

Here’s what you need to stay focused on to understand where the markets are headed next.

What Is the Fed Going to Do?

Over the past year and a half, it’s done a lot.

Interest rates went from almost zero to over 5% in response to rampant and persistent post-pandemic inflation.

Now the rate of inflation is declining in the United States. The latest reading based on June data showed a 3% annual increase.

It’s still higher than the Fed’s desired 2% mark.

So the market anticipates another hike. Most likely, the Fed will raise interest rates by 0.25 percentage points.

Then it will likely take a break and see how the effects of its past raises work through the economy.

This is good news.

Regardless of what other economic data says, the Fed is watching inflation and employment.

And both numbers look very good. Unemployment in the United States is at 3.6%, close to its all-time low… and now inflation is in decline.

The urgency to hike isn’t there anymore; this is why the Fed will most likely take a back seat and watch what happens next with inflation and economic growth.

How Will the Markets Respond?

You must have noticed this…

But most indexes have been rising for months now.

The S&P 500 is up 15% since the beginning of the year, while the MSCI World index is up 17%.

The tech-heavy NASDAQ is up 35%.

We are no longer in a bear market.

The economy is doing well…

Interest rates have stabilized…

The risk of a recession is lower than it was last year…

And the markets have been acting accordingly.

Yes, some commentators continue pushing the “gloom and doom” scenario.

But markets disagree. And we are willing to listen to investors rather than the so-called experts.

Back in January, we said:

The rate of inflation is going down. It’s the sixth consecutive drop in inflation and the lowest year-over-year change since October 2021.

That’s a positive trend that gives markets confidence about the overall economic health and a possible slowdown in Fed interest rate hikes. Which, in turn, can lead to faster economic recovery.

Things could be good again soon.

Investors who listened to our analysis back then and acted accordingly could have seen their portfolios grow by over 15%… those who didn’t have the confidence to change their outlook from a bearish one to a bullish one probably didn’t do as well.

We don’t blame them, however. 2022 was a difficult year, and at the beginning of this one, a lot of investors remained cautious.

But six months before inflation dropped so much… when most investors were scared… we were there to tell you that markets could start improving soon.

This outlook didn’t change since then. If anything, we are more confident that a new bull market is here, and it has a lot of life left in it.

Thank you for your loyal readership,

The Financial Star team