The Dow Jones index reached the necessary threshold for entering positive territory yesterday after finishing a climb of more than 20% from its annual low point on September 30. According to Dow Jones market data, the increase in the index since September is likewise the Dow’s largest two-month gain since July 1938.
The index increased after Jerome Powell, the head of the Federal Reserve, hinted this week that interest rate increases would slow down. However, it was not sufficient to undo the harm that the Fed’s tight monetary policies over the previous year had done to the markets. The value of a company’s future earnings has decreased as a result of aggressive interest rate increases in opposition to inflation that have increased the chances for investors to make returns off the market.
Possibility of a soft landing
Market confidence increased when Powell suggested that the Fed was on track to raise interest rates by half a percentage point at its December meeting, following a string of four rate hikes of 0.75%. To reach 4080.11, the S&P 500 gained 122.48 points, or 3.1%. To reach 34589.77, the Dow Jones increased by 737.24 points, or 2.2%. The Nasdaq increased by 484.22 points, or 4.4%, to reach 11468.00, all while key indices have been gaining over the past few weeks.
Powell’s speech, according to Hank Smith, head of investment strategy at the Haverford Trust, “offered greater hope to the elusive chance of a soft landing.” There is a potential of a soft landing rather than a hard landing, or a classic recession, according to the market.
There are many who want to encourage people not to let the surge fool them and to exercise caution, similar to the expert opinions that have recently been heard following every recovery. History is replete with instances of equities increasing during a bear market before eventually falling and wiping out all of those gains. According to FactSet statistics provided in “Market Watch,” strong increases followed by falls have already happened more than three times since the start of 2022: in March, July, and August, and once more since mid-October.
Following the deflating of the dot-com boom, one noteworthy case can be observed. Before the Nasdaq reached its final cycle low in 2002, it had recorded at least seven rises of 20% or more.
Investors are wary and pessimistic.
Strategists are nonetheless wary in light of this and the fact that the Fed is continuing to raise interest rates. It is challenging to determine when a bear market has genuinely ended since, like determining the start of a recession, the commencement of a new bull market is frequently only visible in retrospect.
Mark Happel, chief investment officer at UBS Global Wealth Management, cautioned investors to expect increased volatility as the Dow rose at the close of the previous week.
“We continue to be dubious about the possibility that the current increase ushers in a new market character. In the absence of weaker job data and a more regular supply of pricing data, the Fed’s top priority will likely continue to be combating inflation. In light of this, we choose to invest in fixed income assets like Treasury bonds, according to Hafele for “Market Watch.” “.