The Dow could even end the year green

New York
CNN Business
 — 

Most of 2022 has been pretty dismal for investors, but the stock market is in the midst of one heck of a fourth-quarter rally: The Dow enjoyed its best month in nearly a half-century in October and it’s up another 4% in November.

Although stocks were trading lower Monday, the blue-chip index is down only about 6% for 2022 — and just 7% below its all-time high.

If the Dow can regain all of its ground and ends the year in positive territory, it would be an amazing comeback. In bear-market territory, the Dow was more than 21% lower in mid-October.

What’s happened? What’s the story?

(BA), Caterpillar

Honeywell and (CAT)

(HON) have risen. Walgreens has seen its shares rise as well.

(WBA), Home Depot

(HD) & Nike

(NKE), and the leading financials Goldman Sachs

JPMorgan Chase and (GS).

(JPM).

The S&P 500 and Nasdaq are still pretty deep in the red for 2022, off 16% and 28% respectively. Even though these indexes are still at their lowest levels for the year, they have shown remarkable improvement in recent weeks.

There are a few things at play. First, there’s a growing sense that the Federal Reserve might be done with the most significant portion of its massive rate hikes. Inflation appears to be at its peak.

There is hope that the US will experience a soft landing or mild recession. Consumer spending might not drop off the cliff if this were to occur. Corporate profits would also be affected. Stocks would benefit from this.

Some market watchers still wonder if the market rebound that has been so rapid in recent weeks is too much. Are investors getting too excited? The CNN Business Fear & Greed index, which measures seven indicators of market sentiment, is now showing signs of Greed and is moving closer to Extreme Greed levels.

But others believe the market rebound may be warranted, especially for stocks that conservative investors love — such as companies that pay healthy dividend yields.

“We think stocks could stabilize. Inflation appears to be cooperating. So far earnings are too,” said John Augustine, chief investment officer with Huntington Private Bank. “But we favor income over growth.”

Augustine said investors should “nibble” at the market as opposed to jumping headfirst into riskier stocks. He noted that the S&P Dividend ETF

(SDY), which is the owner of high-yielding businesses such as VF Corp

(VFC). (Vans and The North Face owners), IBM

(IBM and 3M

(MMM), actually, is up 1% this past year.

Analysts warn that the market selling is not over.

“I see a lot of similarities to the downturn of 2000. There were several times when the stock market came back and then went back down,” said John Duffy, co-founder of Trending Stocks.

Following the bursting of the tech bubble in 2000, stocks traded in a fairly tight range for nearly three years and the Nasdaq lagged the Dow and S&P 500 by a wide margin. This could happen again.

Duffy said he’d also be wary of consumer stocks given continued concerns about the economy and the eventual impact of rate hikes. Duffy believes that energy stocks might be more resilient and that industrials, as well as materials stocks, are attractive.