Whether recent gains in the market have been justified should become a little clearer in the week ahead, as a smattering of third-quarter earnings are released and the government reveals the latest employment figures for September.

All three major averages rose last week and bonds fell sharply, despite some mixed economic news, $50 oil and an apparent win by Sen. John Kerry in the first of three presidential debates. Wall Street is generally viewed as being biased toward President Bush, who has cut taxes on stock dividends and capital gains.

Ed Peters, chief investment strategist at PanAgora Asset Management, said the turn in the market is due to a recognition among investors that stocks are "grossly undervalued."

"As far as we're concerned, the market has been pricing in some sort of catastrophe," he said. "Based on my numbers, earnings would have to drop 35% to justify the current level."

While few analysts are predicting such a big decline, profit growth is in the process of decelerating and some analysts say the recent optimism could prove to be short-lived if companies issue disappointing guidance along with third-quarter earnings. Only two

Dow

components are expected to post results next week, but the reports could prove to be a harbinger of what is to come.

Alcoa

(AA) - Get Report

is expected to post a profit of 33 cents a share on Thursday compared with 29 cents a year earlier. The company warned last month that earnings would be well below the 50-cent estimate projected by analysts, because of plant shutdowns and restructuring charges.

On Friday,

General Electric

(GE) - Get Report

is expected to say that it earned 38 cents a share in the third quarter, compared with 40 cents a share last year.

Genentech

(DNA)

and

Costco

(COST) - Get Report

are also expected to release results.

Overall, third-quarter earnings are projected to rise 14.2% year over year, down from the more than 20% growth seen over the previous four quarters, according to Thomson First Call. Profits in the fourth quarter are slated to increase around 15%.

"Third-quarter earnings will make or break us on a short-term basis," said Larry Wachtel, chief market analyst at Prudential Financial.

Investors will also be keeping a close eye on the economic data next week, particularly the all-important jobs report on Friday. Economists estimate that 153,000 jobs were added to the payroll last month, and the jobless rate is expected to hold steady at 5.5%. Average hourly earnings are expected to climb 0.3%.

"I think it'd be in concert with what we're seeing in the economy, kind of a muddling through 3% to 3.5% growth," Wachtel said.

With oil prices sitting close to $50 a barrel and interest rates on the rise, consumer confidence has recently taken a hit. And unless the job market shows further signs of improvement, economists say consumer spending -- which accounts for about two-thirds of economic growth -- could be in trouble.

Other reports due out next week include factory orders on Monday, the Institute for Supply Management's services index on Tuesday, consumer credit and weekly jobless claims on Thursday and wholesale inventories on Friday.

On the political front, a debate between Vice President Dick Cheney and Senator John Edwards has been planned for Tuesday, and a second presidential debate is scheduled for Friday. Still, analysts aren't sure what impact, if any, these events will have on the market. Indeed, stocks rose sharply on Friday, despite wide acknowledgment that Sen. John Kerry won the debate with President Bush on Thursday night.

"It looked like Kerry won but the market rallied," said Watchel. "So much for that" view that a Bush victory is desirable in November.

Wachtel said he is expecting the market to move sideways over the next few weeks and months but noted that October has historically been a month of stock market crashes. The Stock Traders Almanac describes October as the "jinx" month, because of crashes that occurred in 1929, 1987 and 1997. But it also notes that October has been a "bear killer," having turned the tide in 11 post-World War II bear markets.