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Published: Aug 15, 2022 5 min read
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Investors have reason to celebrate.

The S&P 500, a benchmark index often used to measure how the U.S. stock market is doing overall, finished up its fourth positive week in a row Friday and has recovered 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 who have been contending with a volatile 2022. And the rally continued Monday, with the S&P 500 up 0.3% at midday.

Stocks officially entered a bear market in June amid high inflation and rising interest rates. But the latest data on consumer prices provided some optimism. The consumer price index (CPI), which measures price changes for a variety of goods and services, rose 8.5% in July from a year earlier, which marked slowdown from June, when consumer prices increased 9.1% from the year before, according to data from the Labor Department.

Investors are hopeful that with inflation cooling, the Federal Reserve may be able to slow its interest rate hikes.

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Where the stock market is heading next

If history is any indication, the current "bear market rally" — the term used for when stock prices rise during a period of prolonged declines — may have further to go.

Bear market rallies don't usually run as high or as long as we're seeing now, Jason Goepfert, president of Sundial Capital Research, told The Wall Street Journal.

“Typically a bear-market rally would retrace less than a third of its decline before it fails,” Goepfert said. “Whenever the S&P 500 has made up more than a third of its decline, most of the time, it was a sign of a new bull market.”

Equity strategists at J.P. Morgan also indicated the stock rally may still have more room to rise.

“Is the rebound getting overdone and should one go back into value style? Not yet, in our view," the strategists wrote in a research note published Monday.

Of course, not everyone is as optimistic. Dennis Gartman, chairman of the University of Akron Endowment Fund, signaled on Bloomberg Surveillance Friday that he thinks the bear market rally won't "last much longer."

One reason for a potential market dip is that as of Friday, 93% of the sub-industries in the S&P 1500 were trading above their 40-week moving average, according to Sam Stovall, chief investment strategist at CFRA Research.

This implies that a lot of groups are enjoying the advance, but when too many are rising, it indicates that the market is getting a bit overbought, Stovall tells Money via email.

While market experts are split on where stocks are headed from here, the classic advice doled out by financial advisors during volatility holds true: A strong investing plan that includes a well-diversified portfolio will help you build wealth in the long term, and knee-jerk reactions to market moves could set you back.

"We would caution investors not to get too bulled up or chase this rally," Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a note to clients Monday.

She added that while the "inflation dark clouds appear to be finally parting," there is a decent chance that the Fed will have to hike interest rates more than the market is expecting, which could cool investor sentiment.

"In short, investors should be pleased with what the summer rally has done to their portfolios, but also remain
prepared for more volatility to come as the weather cools," Marcelli adds.

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