Market Extra: Stocks are having a stellar October. Why the bear-market rally may have more room to run.

by | Oct 25, 2022 | Stock Market

Despite a raft of risky events that investors must face down over the coming weeks, some on Wall Street believe that the latest bear-market rally in stocks has more room to run. Although the S&P 500
SPX,
+1.30%,
Dow Jones Industrial Average
DJIA,
+0.87%
and Nasdaq Composite
COMP,
+14.69%
remain mired in bear markets, stocks have been bouncing back from the “oversold” levels when the major indexes fell to their lowest levels in two years. Bear markets are known for sharp bounces, such as the rebound that took the S&P 500 up more than 17% from its mid-June low before sliding back down to set a new 2022 low on Oct. 12.

With that said, here are a few things for investors to keep in mind. There’s plenty of event risk facing markets On top of a deluge of corporate earnings this week, including some of the biggest megacap tech stocks like Microsoft Corp.
MSFT,
+0.91%
and Amazom.com Inc.
AMZN,
+0.59%,
investors will also receive some key economic data reports over the next couple of weeks — including a reading from the Fed’s preferred inflation gauge on Friday, and the October jobs numbers, set to be released on Nov. 4. Beyond that, there’s also the Fed’s next policy meeting that concludes on Nov. 2. The Fed is widely expected to hike interest rates by another 75 basis points, the fourth “jumbo” hike this year. Midterm U.S. elections, which will determine which party controls the House and Senate in the U.S. are slated to take place Nov. 9. Investors are still trying to parse the Fed’s latest messaging shift Investors cheered what some market watchers described as a coordinated shift in messaging from the Fed last week, conveyed via an Oct. 21 report from The Wall Street Journal that indicated the size of a December Fed rate increase would be up for debate, along with comments from San Francisco Fed President Mary Daly. Still, the Fed isn’t expected to materially pivot any time soon. Because the fact remains: there’s plenty of froth that needs to be squeezed out of markets after nearly two years of extraordinary monetary and fiscal stimulus unleashed in the wake of the COVID-19 pandemic, according to Steve Sosnick, chief strategist at Interactive Brokers. “It’s easier to inflate a bubble than to pop it, and I’m not using the term ‘bubble’ facetiously,” he said during a phone interview with MarketWatch. Richard Farr, chief market strategist at Merion Capital Group, played down the impact of the Fed’s latest “coordinated” shift in guidance during an interview with MarketWatch, saying the impact on the terminal fed-funds rate is relatively immaterial. Fed-funds futures traders anticipate the upper end of the central bank’s key target rate will rise to 5% before the end of the first quarter of next year, and remain there potentially into the fourth quarter, although an earlier cut woul …

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