After being taken on a roller-coaster ride this summer, market-watchers are looking for stocks in the coming week to provide a strong start to the fourth quarter. "Now that September and the third quarter are coming to a close, investors are wondering if they can breathe a sigh of relief and utter good riddance," says Sam Stovall, chief investment strategist at Standard & Poor's. "Well, if history is any guide, they most certainly can." According to Stovall, the S&P 500's average gain of 2.8% in October has been superior to any other month of the year since 1990. And the S&P has risen by an average of 6.8% in the fourth quarter over the same span. Stovall also does not expect Hurricane Katrina to weigh too heavily on earnings in the coming month. According to his forecasts, operating earnings growth for the S&P should continue to advance at double-digit rates for the third quarter, full year 2005 and all of 2006. "An expected snap back from what we view as the market's negative overreaction to the hurricanes' effect on consumer sentiment and corporate earnings -- similar to consumers' and investors' reactions following the 9/11 attacks -- will prove
it to be overstated, in our opinion," says Stovall. "And the U.S. equity markets will work their way higher during this fourth quarter."
Economists also expect a dip to 59 from 65 in August when the ISM services data are released, on Wednesday. Friday's nonfarm payrolls number will be the main event, however, especially in light of Hurricane Katrina. "We've heard a lot of noise, but the market wants to see how much Katrina really impacted the economy in September," says Paul Mendelsohn, strategist at Windham Financial. "If employment starts to deteriorate in earnest, then the Fed may start to rethink its plans." Economists are expecting a loss of 172,000 jobs for the month, compared with a gain of 169,000 in August. The consensus estimate for the unemployment rate is 5.1%, up from 4.9% the prior month.