Dow Jones Industrial Average Has the Best October Ever, But the Pain Isn’t Over

October is known on Wall Street as being a bear-market killer. And that maxim held true this year with the Dow Jones Industrial Average recording the best October in its 126-year history and best month since 1976.

The blue-chip barometer entered the month in bear market territory, down 21% year-to-date and 22% off its early January highs. By the end of the month, the Dow had rallied 13.95%. The big boost left the Dow Jones down 9.8% year-to-date, not even in correction territory.

Why Is the Dow Jones Doing So Well?

Inflation is still at decade highs, but investors are starting to believe that the Federal Reserve’s interest rate hikes are beginning to have an impact. That doesn’t mean the Fed isn’t going to announce additional oversized rate hikes, but it does appear as though inflation has peaked. And that has led some to believe the Fed will soon pause its rate hikes.

Investors have also been buoyed by a strong earnings season. As of this writing, just over half (52%) of S&P 500 companies have reported their results with 71% reporting positive earnings per share surprises and 68% of S&P 500 companies reporting a positive revenue surprise.

It can’t all be smooth sailing. If inflation isn’t under control and interest rates aren’t going down, the stock market has no reason to truly rebound.

Most companies would typically provide 2023 earnings guidance during their third quarter earnings season, but so far, most have opted not to. This suggests that the outlook for next year isn’t great.

How High Could Stocks Climb in the Bear Market Rally?

That doesn’t mean the current bear market rally is done yet. Some analysts believe the S&P 500 could hit 4150, or 11% above current levels.

After the bear market rally fades, how much further could stocks fall? Bearish analysts point to the S&P 500 slumping to around 3,100 in 2023. That’s 19% from current levels and erases all of the gains made since July 2020.

After that, the bear market could come to an end in the first quarter with the S&P 500 rallying back to 3,900 by mid-2023. If there’s a recession though, it will take the S&P 500 longer to claw itself back to current levels.

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The blue-chip bellwether Dow Jones Industrial Average reported its best October ever and the best month since 1976. The S&P 500 and Nasdaq also reported solid gains. Some see the rally as a sign that the markets have bottomed, but most see the strong gains as a bear market rally that will fade and result in lower lows. Despite the volatility and uncertainty, the trading experts Learn-To-Trade.com can show you how to profit when the markets are going up, down, or sideways.

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