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Published: Nov 11, 2022 5 min read

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Investors just got some much-needed excitement.

Stocks experienced their biggest one-day rally since 2020 on Thursday. The S&P 500 jumped 5.5%, the Dow Jones Industrial Average was up 3.7%, and the tech-heavy Nasdaq Composite soared 7.4%.

"After a huge October gain for stocks, November is living up to its bullish reputation," says Ryan Detrick, chief market strategist at Carson Group.

The surge was the latest evidence that investors are closely watching inflation, and what it mean for the Federal Reserve's monetary policy. On Thursday, the Department of Labor reported that for the year ending in October, the inflation rate was 7.7%, lower than the 8.2%. rate of the previous month. Consumer prices rose by 0.4% from September to October overall — a lower rate than economists had expected.

A favorable inflation report is welcome news for investors, who have been grappling with interest rate hikes from the central bank. Those hikes are a tool used to tamp down inflation, but they also tend to weigh on the price of financial assets like stocks, bonds and crypto. The most recent increase of the Fed’s benchmark federal funds rate was by 75 basis points — the fourth hike in a row of that size.

Investors will closely be watching the Fed's moves at its December meeting. Here's what to expect next from the stock market.

More stock market volatility

The S&P 500's rise Thursday was the index's 15th-best trading day since 1953, analysts at Bespoke Investment Group wrote in a note to clients. One-day gains of 5% or more have historically come during volatile periods for the market, they added.

And the market certainly has been volatile. The S&P 500 has made rollercoaster-like moves since it started the year at an all-time high, including falling into a bear market in June. The S&P 500 was down around 17% for the year as of midday Friday.

While Thursday's inflation report provides hope, investors probably shouldn't expect to say goodbye to volatility just yet.

"The moderation in the pace of inflation is a welcome development," Mark Haefele, chief investment officer at UBS Global Wealth Management wrote in a note to clients Friday. "But we think it is unlikely that the Federal Reserve will consider that its job is done on inflation."

He added that UBS does not think a sustained market rally is in the cards just yet, though sharp swings in investor sentiment — like we saw Thursday — can drive periodic bounces.

"Market volatility is likely to remain elevated," Haefele concluded.

What to expect in the long term from stocks

Volatility may be expected in the short term, but there's a light at the end of the tunnel. Stock prices do tend to trend higher overtime, which should be a relief to long-term investors.

“A 5% rally for the S&P 500 is quite rare, but what investors need to realize is big moves tend to suggest continued stronger returns," Detrick says.

He adds that Carson Group found the previous 22 gains of at least 5% saw stocks up nearly 28% on average a year later and higher 20 times.

Still, if volatility worries you, you're not alone. Now's a good time to make sure you're not making mistakes investors tend to make during market ups and downs, like selling prematurely and overexposing yourself to risk. Money also recently published a list of tips to help you navigate stock market volatility, including diversifying your portfolio and buying stocks at a discount.

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Don't Panic: 7 Expert Tips for Managing Stock Market Volatility

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