Hopes for a soft economic landing are driving U.S. stocks higher again as encouraging data eases recession fears after a brutal sell-off earlier this month.

The S&P 500 .SPX has rallied more than 6% since Aug. 5, when a sharp decline sent the U.S. benchmark index to its biggest three-day fall in over two years. A quick return to calm was also evident in the Cboe Volatility Index .VIX, Wall Street’s “fear barometer,” which has retreated at a record pace from its four-year high hit last week.

The turnaround was driven by last week’s reports on retail sales, inflation and producer prices, which helped ease concerns about an economic slowdown sparked by weaker-than-expected jobs data earlier in the month. The positive data has bolstered the case for investors looking to revisit many of the successful trades this year, from buying big tech stocks to a newer bet on small- and mid-cap names that gained momentum in July.

“There was a real fear of growth,” said Mona Mahajan, chief investment strategist at Edward Jones. “Since then, we’ve seen that the economic data is actually appearing in a much more positive light.”

Some of the biggest winners of 2024 have staged strong recoveries since Aug. 5. Chipmaker Nvidia NVDA.O has gained more than 20%, while the Philadelphia SE Semiconductor Index .SOX has gained more than 14%. Small-cap stocks that performed strongly in July have also recovered from recent lows, with the Russell 2000 .RUT up nearly 5%.

Meanwhile, traders are withdrawing bets that the US Federal Reserve will have to make massive interest rate cuts in September to avert a recession.

Late Thursday, futures tied to the Fed’s benchmark interest rate showed traders were pricing in a 25 percent chance that the central bank will cut rates by 50 basis points in September. On Aug. 5, the probability was around 85 percent, according to data from CME FedWatch. The probability of a 25 basis point cut was 75 percent, consistent with expectations that the Fed will begin an easing cycle in September.

“You can’t necessarily rule out the scenario of a hard landing, but there are many reasons to believe that economic momentum is being sufficiently sustained at this point,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.

The Fed’s plans may become clearer when Chairman Jerome Powell speaks at the central bank’s annual economic policy symposium in Jackson Hole, Wyoming.

“We believe a key highlight of Powell’s speech will be the acknowledgement that progress on inflation has been sufficient to begin cutting interest rates,” economists at BNP Paribas said in a note on Thursday.

For the year, the S&P 500 is up more than 16% and is about 2% below its all-time high set in July.

Edward Jones’ Mahajan believes the soft landing scenario combined with lower interest rates will help more stocks participate in the market rally – and not just the few megacaps that have driven the indices higher this year.

Analysts at Capital Economics are convinced that a soft landing of the US economy will further fuel the hype around artificial intelligence, which has already given the markets a boost.

“Our forecast for the S&P 500 by the end of 2024 remains at 6,000, driven by the view that the AI ​​narrative that dominated the first half of the year will reassert itself,” they wrote. That target would be about 8% below the S&P 500’s closing price on Thursday.

While the latest economic data is reassuring, it is far from a wake-up call for markets in September, which has historically been one of the more volatile periods of the year. Investors will be closely watching Nvidia’s earnings at the end of the month and another employment report on September 6.

“There was clearly a sigh of relief in the market,” said Quincy Krosby, chief global finance strategist at LPL Financial. “The question now is whether the next payroll report will reinforce the market’s expectations of a soft landing.”