From a global shake in sovereign bonds to soaring energy costs, October lived up to its reputation as one of the most volatile months for markets. Much to the chagrin of the bears, however, the uproar did nothing to stop the relentless rally in stocks.

Even the disappointing results of two of the world’s largest companies could not slow the rise of the S&P 500. It ended the week at a record high despite the declines of Apple Inc. and Amazon.com Inc., recording a close gain. 7% for the month to mark the best October in six years.

Part of the credit for the market’s resilience goes to a earnings season which, aside from a few setbacks, delivered an almost unprecedented rate of positive surprises. Yet much of the latest rally comes down to the return of the animal spirits. Take the options market, where traders have crammed into bullish calls for equity rallies like Tesla Inc. Inflows into equity funds have also peaked in seven months as a majority of bears have been forced to convert into buyers.

Momentum breeds momentum. This can be especially true in the last two months of the year, when fund managers have one last chance to catch up before their annual report card is drawn up. About three-fifths of the group are below their benchmarks, so an increase in risk-taking could fuel a rally that has pushed the S&P 500 up more than 22% in the first 10 months.

“History, risk appetite and rewards all point to a ‘merger’ at the end of the year,” said Chris Harvey, head of equity strategy at Wells Fargo & Co. He expects that The S&P 500 ends in December at 4,825, a 4.8 percent increase from Friday’s close of 4,605. “We think it’s too early to leave the party.”

The S&P 500 rose 1.3% in five days for a fourth consecutive weekly gain, the longest streak since April. He climbed in all 13 sessions except two. The Dow Jones Industrial Average and the Russell 2000 each rose at least 0.3% during the period. The tech-heavy Nasdaq 100 outperformed, climbing 3.2% amid strong earnings from companies like Microsoft Corp. and Alphabet Inc.

While nothing spectacular, the weekly performance has been impressive given the lingering threats in the market. US economic growth weakened more than expected in the third quarter and commodity inflation continued to climb. As central banks in the UK and Canada turned hawkish, the sovereign debt yield curve has collapsed around the world, a sign from the bond market that growth will slow as short-term rates rise.

The supporting actions were profits that continued to challenge pessimism around supply chain tightening and soaring input prices. While Apple has warned bottlenecks threaten its vacation sales, companies like Mattel Inc. are finding ways to get their products to consumers. And while Amazon has warned that huge costs due to labor shortages could wipe out its profits in the last quarter of the year, others like Chipotle Mexican Grill Inc. are using automation to increase production. productivity and profits.

Overall, more than 80% of S&P 500 companies have beaten analysts’ earnings estimates this season, a pace never seen before the pandemic. Rather than shrinking – as many feared – profit margins continued to rise.

The comment from the management of the company “was quite positive about how they passed on their input costs to the consumer in terms of increasing prices, or very efficient use of technology to try. to maintain their operating leverage “, David Kostin, head of the United States. equity strategist at Goldman Sachs Group Inc., told Alix Steel on Bloomberg TV. “The market doesn’t wait for problems to resolve to focus on the future.

Investors started flocking to equities after pulling back in September. They invested around US $ 25 billion in exchange-traded funds this week through Thursday, the largest inflows since March, according to data compiled by Bloomberg.

Traders hoping to make quick profits flocked to bullish options. Based on its 10-day average, a Cboe put-to-call ratio that tracks option volume tied to everything from individual stocks to indices has fallen to its lowest level in three months.

From stock pickers to computer traders, the urge to come back to stocks was so strong after the September rout that a measure of Deutsche Bank AG’s investor positioning rose to the 87th percentile of a historic 56th percentile range. in a few weeks.

Even traders who identify as bears have bought. According to a survey by the National Association of Active Investment Managers, in the current sentiment breakdown, a bear is someone who is 65% invested in stocks. Such optimism has only surfaced twice in the history of the survey, at the start of this year and in the final months of 2017.

Complacency? Perhaps, especially given the angst that bond investors show. The divergence can be seen in the ratio of the Cboe volatility index, or a measure of the cost of options known as the VIX, and the MOVE index, which tracks the implied volatility of Treasury options. That ratio fell this month to the highest level since February 2020.

“The bond market is saying that the Fed is late, that there is a political crash ahead, and they go so far as to say that at the end of the day it will be a much shorter cycle at a terminal value below. rate, ”Lisa said. Shalett, chief investment officer of Morgan Stanley Wealth Management, told Lisa Abramowicz on Bloomberg TV. “It’s a pretty harsh statement that the bond market is sending out, and the equity market so far has ignored it.”

But the favorable seasonal pattern is difficult to combat. Since 1927, the S&P 500 has registered gains in the last two months about 57% of the time. When the first 10 months saw the index rise by more than 20%, as it does in 2021, the odds of positive returns jumped to 75%.

The backdrop provides the opportunity to continue performance until the end of the year, as the majority of active funds lag the market. Only 38% of mutual funds have beaten the S&P 500 this year, according to data compiled by Wolfe Research. Meanwhile, an index that tracks hedge fund returns is up 11%, half the benchmark’s gain.

“An extension of the rally makes sense,” said Ross Mayfield, investment strategy analyst at Baird. “I don’t know if this is going to be something too crazy, but you have kind of a seasonal tailwind.”