IInvestors have reason to celebrate.
The S&P 500, a benchmark index often used to gauge how the US stock market as a whole is doing, ended its fourth straight week of gains on Friday, clawing back half of its losses from this year’s deep decline.
The index is now on its longest winning streak since 2021 – welcome news for investors grappling with a volatile 2022. And the rally continued on Monday, with the S&P 500 gaining 0.3% midday.
Stocks officially entered a bear market in June amid high inflation and rising interest rates. However, recent consumer price data provided some optimism. The Consumer Price Index (CPI), which measures price changes for a variety of goods and services, rose 8.5% yoy in July, slowing from June, when consumer prices rose 9.1% yoy, according to data from the employment office.
Investors are hoping that as inflation cools, the Federal Reserve will be able to slow its rate hikes.
Where the stock market is headed next
If history is any indication, the current “bear market rally” — the term used when stock prices rise during a period of sustained declines — may need to go further.
Bear market rallies don’t typically run as high or as long as we’re seeing now, said Jason Goepfert, president of Sundial Capital Research The Wall Street Journal.
“Typically, a bear market rally would retrace less than a third of its decline before floundering,” Goepfert said. “Most of the time, when the S&P 500 has recovered more than a third of its decline, it has been a sign of a new bull market.”
JP Morgan’s equity strategists also pointed out that the stock rally could have more room to the upside.
“Is the rebound being overdone and should one go back to the value style? Not yet, in our view,” the strategists wrote in a research note published on Monday.
Of course, not everyone is so optimistic. Dennis Gartman, chairman of the University of Akron Endowment Fund, signaled to Bloomberg Surveillance on Friday that he believes the bear market rally won’t last “much longer.”
One reason for a possible market rout is that 93% of the sub-sectors in the S&P 1500 were trading above their 40-week moving average as of Friday, according to Sam Stovall, chief investment strategist at CFRA Research.
This implies many groups are enjoying the rise, but if too many are rising it suggests the market is becoming a bit overbought, Stovall Money tells via email.
While market experts are divided on where stocks will go from here, the classic advice financial advisors give during volatility applies: A strong investment plan that includes a well-diversified portfolio will help you build wealth over the long term, and knee- Jerky reactions to market movements could set you back.
“We caution investors not to get too cocky or chase this rally,” wrote Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note to clients on Monday.
She added that while the “dark clouds on inflation finally appear to be clearing,” there’s a good chance the Fed will have to hike rates more than the market is expecting, which could dampen investor sentiment.
“In short, investors should be happy with what the summer rally has done to their portfolios, but stay happy
prepared for further volatility as the weather cools down,” adds Marcelli.
More of money:
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