The Economic Data Suggests A Stock Market Rally

Alpesh Patel
Sep 11, 2022
3 min read

Updated: Nov 15, 2023

The Ukraine war and China's lockdowns had devastating consequences on the global economy. Skyrocketing gas prices and inflation kept many on the edge of their seats, fearing a recession. Thus, the new year brought with it one of the worst starts for the stock market in history.

Wall Street Stocks Rise and Treasuries Recover from Early Declines

The rise in stock markets started an unexpected rally. Then suddenly, a pleasant surprise and the market took an abrupt turn. The S&P 500 rose quickly, rebounding over 17%. Government bonds rallied, and Nasdaq tech stocks jumped 20%, making it a leading sector.

The US stock market rally gives investors optimism that the worst of the interest rate hikes is over. There was a collective sigh of relief, hoping the country was past rising rates and inflation.

Experts Advise Investors to Remain Tactically Cautious

Despite the stock market rally, Bank of America analysts warn prices are still too high. They urge everyone to remain "tactically cautious." A recent MLIV Pulse survey shows stocks and bonds will likely fall again.

Federal Reserve Chairman Jerome Powell recently expressed that rate hikes will continue until prices stabilize. He said history warns against loosening Fed policy too soon. "In an earlier statement, Powell said the Feds would slow the pace of hikes at some point." After his comments, the stock markets dipped, and the Dow Jones plummeted by over 600 points.

Invest in the Stock Market but Remain Prudent

Firms using statistical trading models unwind bearish positions, and Quant funds support the rally by upping stock bets. Many investors assert inflation is peeking and point to factors driving the stock market recovery. One investor sentiment survey shows the bear-market rallies near peak level. It could be an indicator that stock prices will rise.

Analysts say it's a good time to invest and great for newcomers to enter the market. According to Investor's Business Daily, new IBD users should get familiar with its stock trading system. Learning to recognize chart patterns is a vital element of the investment guidelines. Investors should be wary of short-term volatility and remember speed isn't unnecessary. Just keep going.

Stocks May Soar Before Collapsing

The stock markets rallied in recent months, making investors hopeful that stocks bottomed out and the worst is over. Still, a growing number of analysts warn that the average bear rally is 289 days, and it's running out of steam. Everyone should expect to see new lows.

In addition, fears of continuing interest rate hikes caused Wall Street's 'fear gauge' to soar.

Some traders shrug off the stock market rally, calling it misguided euphoria, and experts warn of stalling as the Dow falls over 600 points. The chief market strategist at JonesTrading asserted the recent rally isn't sustainable. According to him, investors should expect volatile highs and lows for the rest of the year.