Like the battery-powered bunny of the famous TV commercial, this stock market rally keeps going and going and going.

This upward trajectory for equities comes as U.S. retail sales rose at a slowing but resilient pace in June. The American consumer is hanging tough. Retail sales are a leading indicator; the sector is the largest private employer in the United States.

Retail sales in the U.S. increased less than consensus expectations in June, rising 0.2% month-over-month, compared to projections of 0.5% growth.

That said, the May figures were revised higher from 0.3% to 0.5%, and seven of the 13 retail categories increased in June (see chart).

The greater spending in retail came from categories such as non-store retailers, electronics, and furniture outlets. However, we’re still witnessing the continuing deceleration in demand for goods, as consumers shift their focus to spending on services, notably leisure, hospitality, and travel.

The travel industry is bouncing back after its pandemic woes, with the sector already enjoying a summer travel boom as consumers indulge their pent-up need to get away. Leisure meccas such as Las Vegas are thriving. Indeed, the overall Nevada jobs market is exploding.

The consumer is flagging, but not retrenching. Household-spending growth is not decelerating at the pace that other areas of the economy are experiencing. A gradual slowdown in household consumption, not a steep decline, is likely to occur in the latter part of 2023.

Big Banks continue to surprise on the upside…

Meanwhile, the operating results of the big banks continue to beat expectations. Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Tuesday both beat on the top and bottom lines in their Q2 results, as higher interest rates boosted their interest income. Goldman Sachs (NYSE: GS) on Wednesday missed on the top line but beat revenue expectations.

At the same time, the benchmark 10-year U.S. Treasury yield has been modestly declining as economic optimism picks up. As of this writing, the 10-year yield was hovering at 3.76%.

Another sign that experts don’t expect a recession is the outperformance in recent weeks of small stocks, which are cyclically sensitive.

Amid these crosscurrents, stocks are more than holding their own. On Thursday, the main U.S. stock market indices closed higher as follows:

• DJIA: +0.31%
• S&P 500: +0.24%
• NASDAQ: +0.03%
• Russell 2000: +0.45%

The U.S. dollar has been flat in recent days, with the DXY dollar index down about 3.0% this month. The U.S. dollar has shifted lower largely because Wall Street is currently betting that the Federal Open Market Committee (FOMC) will pause its rate-hiking campaign after its July 25-26 meeting.

The 800-pound gorilla in this narrative is the FOMC. Economic gains this year could be thrown away if the FOMC overdoes it and maintains a hawkish stance to fight inflation, despite the clear disinflationary signals.

The problem that inflation hawks tend to ignore is that the Fed can’t do much to solve the major causes of inflation, which have been supply chain disruptions and shortages caused by COVID and the Russia-Ukraine war. Hence Wall Street’s underlying jitters. The fear is that the Fed could go too far and invite a recession.

WATCH THIS VIDEO: What The Bears Still Get Wrong

Many fund managers are still underinvested in the market and are sitting on relatively large cash allocations. These managers are feeling left behind as the market steadily rises; this is why every minor dip in the averages seems to attract buyers by the end of the session.

I suspect we’ll see managers look to window-dress their portfolios between now and the end of the third quarter. These institutional players will want to buy winning stocks for their portfolios before the quarter is over.

Now’s the time to gain exposure to growth stocks. Much of the fuel for this rally has derived from enthusiasm over artificial intelligence (AI). If you’re looking for a way to cash in on the AI super-boom, I suggest you consider the advice of my colleague Jim Pearce.

As chief investment strategist of our flagship publication Personal Finance, Jim Pearce has just found the optimal AI play. The company’s leading-edge technology has the power to withstand economic ups and downs, or the whims of Fed policy.

Jim’s AI investment lets you get started for about $100…and it generates regular cash payouts of up to $5,397. Want to learn more? Click here.

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: