August can be dull on Wall Street, but when most traders are distracted trying to squeeze in one last family vacation before the kids go back to school, lower turnover makes occasional storms of volatility possible. That’s what happened this year.

A week ago, the S&P 500 had dropped 5% from its recent peak, giving some investors flashbacks of the savage selling we experienced last year. Earnings were no help. Instead, the stock market obsessed over outside factors: the bond market, the Fed, even China.

But here we are now and while the squall blew a lot of charts around, there wasn’t a lot of fury in the noise. The market has already recovered all but a few percentage points of its losses, which means a return to record-breaking territory is barely 3% away.

Put that in context: the first time stocks hit this level was almost exactly two years ago, when interest rates were a lot lower and residual post-pandemic euphoria still ruled the world. That’s where the S&P 500 is now.

Admittedly, the last two years have been a rollercoaster, but the losses were transitory. They healed. And this time around, the rebound demonstrates that the logic behind the latest relapse in bear sentiment really doesn’t hold up to scrutiny.

Consider the argument: Treasury yields go up because an external event pushes a little money out of the bond market. Normally money flows out of bonds in order to chase higher returns in the stock market, but this time stocks went down as well because investors are obsessed with the notion that higher bond yields will lure money out of stocks.

But that isn’t happening here because that external event is keeping money out of the bond market. Yields stay elevated. And sooner or later, smart people wake up and realize that bond yields aren’t starving the stock market. Stocks remain the only long-term game in town that can keep up with inflation and the Fed, even between recessions.

And meanwhile, higher long-term interest rates have helped relieve the inversion in the yield curve that pointed to an inexorable recession ahead. The Fed sets the low end of the curve. Right now overnight rates are at 5.33%. In a healthy economy, rates get higher as the loan term expands, so we would expect long-term rates well above 5.3% . . . maybe even 6% or 7%.

That’s exactly where mortgage rates are. And while long Treasury yields are still below 4.5%, the inversion was a lot more severe back in May, when 10-year bonds paid almost 2.4% less than overnight bills. That’s ordinarily a signal of imminent disaster. Nearly four months later, that disaster has not happened.

Any landing you walk away from is good enough. That’s what the Treasury market is trying to engineer as money pours out of long-term bonds into short-term paper. The curve is trying to heal. If shareholders decide that means it’s time to sell stocks, we’ll be happy to buy the dip.

After all, long-term bonds are suffering for two main reasons unrelated to the economy. First, the Treasury is lightening its balance sheet, which means letting trillions of dollars of bonds mature without rolling it over, effectively becoming a net seller of new government debt. Lower demand means prices drop, which means yields rise.

And second, Treasury debt lost its AAA rating with a small but significant segment of the bond market, which can no longer hold quite so many of these bonds under existing quality covenants. More potential buyers disappear.  Lower demand means prices drop, and you know the rest.

But this is not about the bond market. What I’ve seen in the last month is good companies getting sold off because traders made a reflex assumption about the relationship between yields and stocks. Now cooler heads are in control. Once it became clear last week that Jay Powell isn’t going to move the goalposts again, that means people are buying the dip.

Just look at my GameChangers portfolio for an example of how this works. These are growth stocks. Many are priced at higher-than-average earnings multiples to reflect that growth. Last year taught traders that multiples that work in a zero-rate environment need to come down when money actually costs something.

In a lot of cases, the stocks came down to pre-pandemic levels, giving up every bit of progress they’d made for shareholders along the way. That makes superficial sense. Before the pandemic, these stocks were priced for non-zero rates. After the pandemic, bubble pricing needed to go away. It was just a figment of extreme stimulus.

However, the sense is only superficial because the companies kept growing throughout the cycle. Revenue has doubled or tripled in some cases. Earnings have expanded and keep growing even as the S&P 500 as a whole founders.

Go back just two weeks, and this was a rainy season for the GameChangers, with our stocks dropping 9% in the aggregate as name after name released good numbers into what sometimes felt like an endless wave of negativity.

We just couldn’t catch a break. Our cushion of accumulated paper profit deflated. But we’re now back up 12% across the portfolio even after cashing out our newest stock for a quick win: 20% in two weeks.

All but two positions are once again in the scoring zone, where the only question is now “if” we’ll make money but “how much” money we’re willing to accept as payment for our shares. The bulls came roaring back.

The gap between our stocks and the S&P 500 narrowed. Now we’ve closed it entirely. The active GameChangers universe is up nearly 1% since the end of July . . . and when you factor our results on CVNA back into the math, August actually turned into a solid season.

There’s a lot to learn here. The most important lesson is that Wall Street actually rewards those of us who recognize the difference between a sell signal and a “hold.” There was no sell signal in any of our companies’ quarterly results. Anyone who can read can see that the fundamentals are moving forward where the market as a whole has stalled.

For the S&P 500, this was a weak earnings season, with the bottom line collectively shrinking 4% . . . the third quarter in a row of year-over-year decline. That stings. Those mature companies deserve to step back, especially in the face of bond yields, the Fed, recession risk and every other threat you care to dwell on.

After all, the giants seem to have hit a growth wall. Revenue across the S&P 500 isn’t even up 1% over the past year, which isn’t enough to protect their margins from all those fear factors. Our stocks, on the other hand, remain dynamic enough to defy the threats.  If anything, the more disruptive the status quo gets, the more distracted their entrenched competitors get . . . creating bigger and bigger opportunities to capture customers and change the world.

But the word “distraction” carries another lesson for traders like us. We’re relatively small players in the market. Our primary natural weapons revolve around picking our spots and then holding on while big Wall Street tides churn. When we get distracted and fold our hands, we lose our mental grip on our convictions.

Sometimes there’s a reason to change our minds. When a company releases bad quarterly numbers or management needs to dial back existing guidance, for example, you know conditions on the ground have deteriorated from what you were expecting.

However, when the numbers are as good or better than expected, your initial scenario remains intact. There’s no reason to fold unless you’ve simply gotten tired of the game. That’s where we were this season.

And I think we’re still in the early stages of Wall Street coming back to our side of the table. Jay Powell took his shot at Jackson Hole and rate futures markets didn’t move. Bond yields haven’t shut the economy down . . . and those of you with longer memories know the bulls can run against these conditions for years.

There’s nothing lethal about these bond yields. It’s painful. But strong companies adjust, adapt and evolve. We buy strong companies in GameChangers. Want to know more?