To say that it was a good August is an understatement.

Though typically a month where the market wilts, this August ended up being a time of rejuvenation. As the likelihood of another

Federal Reserve rate hike this year slipped toward the vanishing point, stocks moved steadily higher. By the end of the month, the

S&P 500 had added 6.1%, its best August performance since 1986. This all has placed the post-Labor Day market on some pretty solid footing. The tone is good, Friday's benign

employment report reinforced the case for a soft economic landing, bowling scores are way up, mini-golf scores are way down -- in short, life is sweet.

But whether the market can continue to steam forward is about to be sorely tested. We are about to swing into warnings season, when companies whose third-quarter numbers will fall short of analysts' estimates confess their sins. It has, in fact, already begun -- a number of retailers have warned, as have appliance manufacturer


(WHR) - Get Report

and Internet consulting firm



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wrote stories about the warnings from

Whirlpool and


Some believe the confession period will be worse than usual this time around.

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"I think you will have a larger number of companies indicating the third quarter will be below expectations," says Stanley Nabi, vice chairman of

DLJ Asset Management

. Although the apparent slowing of the economy has been a blessing as far as interest rates are concerned -- the yield on the 10-year Treasury note has fallen by about three-quarters of a percentage point since the Fed last raised rates in May -- the flip side is that corporate profits, too, must slow.

This is not to say that profits will not be robust. The economists at

Salomon Smith Barney

reckon S&P 500 earnings will tack on 15% over last year in the third quarter -- pretty good considering that over the last 20 years or so earnings have grown by about 7%. If there is a problem, it's that investors may have come to think of more recent business activity as the norm. Says Salomon economist Mitchell Held, "It's not so much a slowdown as a slowdown relative to expectations."

For the companies in the S&P, earnings have grown by better than 20% for the last four quarters, a performance that will be hard to repeat without the economy reaccelerating -- something that the Fed would be pretty loath to see. Current forecasts call for S&P earnings growth to fall into the single digits by the first quarter next year, according to


. This could be a problem if investors aren't ready for it.

"Evidence continues to build that stock price-to-earnings multiples, though attractive, are not low enough to protect stock prices against a drop in earnings expectations," says Tom McManus, equity portfolio strategist

Banc of America Securities


McManus believes that there is a great deal of complacency on earnings embedded in the market. Not everyone agrees.

"I don't think there's a tremendous expectation for profits," says Tony Dwyer, chief market strategist at

Kirlin Holdings

. The deceleration in profit growth "has been talked about so much, it's been priced in."

Still, Dwyer thinks the market may be heading into something of a rough patch. Earnings warnings can bring out the Cassandra in Wall Street. One warning is taken as a sign that an entire sector has come to woe. The confessing company often abets this process, implying that the trouble they see is affecting their entire industry -- even when that is not the case at all. "After a nice rally, profit-taking is normal, and the market finds an excuse for it," says Dwyer. "The excuse now is going to be upcoming quarterly profits."

But any downdraft, Dwyer emphasizes, will be a time to buy.