For investors, October was a treat. Stocks finished the week and the month on a high note. The market rose 0.2% in light trading last week, fuelled in part by short-covering and continued merger activity.

The Dow Jones Industrial Average soared 8.5%, and the Standard & Poor’s 500 index 8%, in October, for both the best monthly gain in four years. On the week, after a late Friday swoon, the Dow finished up 0.1%, or 16, to 17,663.54, while the S&P 500 index rose four points to 2079.36. The Nasdaq Composite moved up 0.4% last week to 5053.75.

There wasn’t much “plain vanilla” buying from institutional investors, says Tom Carter, a trader at JonesTrading. With market short-interest levels at the highest they’ve been in years, last week’s Federal Reserve news pushed shorts to cover, he adds.

Wednesday, the Fed’s Federal Open Market Committee meeting statement specifically—and unusually—emphasized the potential for a rate hike at its next meeting, Dec. 15-16.

The Fed futures market shows that investors now think a rate hike is a toss-up in December, up from a 33% chance before the meeting. Though the initial market reaction to the statement was negative, shares turned decidedly positive by day’s end.

The market appears to be toggling back and forth on the desirability of a Fed hike, says Terri Spath, chief investment officer for Sierra Investment Management.

There will be numerous opportunities for continued confusing signals from various Fed officials, in speeches and the like before its December meeting. Chair Janet Yellen testifies in Congress Dec. 3. That likely means more volatility.

Chris Gaffney, president of EverBank World Markets, says what the Fed does in December doesn’t matter as much as what it does after. The central bank has said the path to higher rates will be gradual, he says, not hard to believe given the prognosis of more tame U.S. economic data.

Spath adds: “The possibility of a one-and-done by the Fed is higher than a lot of people think.” Though the market has recovered most of its losses since August, “it’s a muddle-through [U.S.] economy and there’s not a lot of room for price/earnings multiple expansion,” she adds. “We’re not poised for a big run from here.”

(Source: Barrons Online)