What happened

Etsy (ETSY -2.35%) shareholders beat a rising market on Monday, with the stock jumping 5% by 3 p.m. ET, compared to a 2.6% surge in the S&P 500. That boost only erased a small portion of recent losses for owners of the e-commerce platform though, which remains down by over 50% so far in 2022, compared to the wider market's 23% decline.

That prior stock-price slump was the biggest factor behind Etsy's rally on Monday as investors became less pessimistic about its short-term growth prospects.

So what

Monday's rally was a sharp reversal of the bearish trend that has brought most of the market down in 2022. Etsy's shares have been hit especially hard during the down days as investors started worrying about a recession on the way.

Shares dove over 6% on two occasions in late September, for example, amid wider market declines. In that context, it makes sense that the stock would rally when sentiment turned more positive as it did on Monday.

Etsy is also entering the holiday shopping period with solid momentum. Sales volumes on its platform were down only slightly through late June, compared to bigger declines at eBay. Etsy is still adding to its buyer pool as well. Its adjusted-profit margin is holding up well, although the company is not profitable on a generally accepted accounting principles (GAAP) basis .

Now what

Investors will get one more major update from the management team before the end of the year. Etsy is slated to release third-quarter operating results in early November, and that report could set the tone for the rest of 2022.

Follow changes in Etsy's buyer pool in that announcement for signs of continued market-share gains. If Etsy can maintain that impressive growth, especially in its international markets, then the business has a good shot at taking big steps toward profitability in 2023 and beyond.