While October might have an unfortunate reputation, the fourth quarter was generally a favorable time for stocks.

Many strategists anticipate stocks surpassing recent highs, despite worries about the Fed tightening, Evergrande and Evergrande from China, as well as Covid.

It S&P 500CFRA reports that the Fourth Quarter saw a 3.9% average gain and has been up 4 out 5 years. Second is the quarter with 2.3% average gains. With an average gain of 2.3%, the worst quarter is the first with a decrease of 0.6%.

The expected return for Q4 2021 is higher than average. But investors need to remain calm during the volatile October ride. This was 36% greater than the average volatility for the past 11 months. Sam Stovalll, CFRA chief investment strategist, says that this will be a challenge.

The S&P 500 eked out a small gain for the third quarter, but was down nearly 5% for the month of September, with a bad ending as the S&P 500 dropped 1.2% on Thursday.

Bespoke Investment Group analyzed the behavior of the S&P 500 in years when it was up solidly year-to-date heading into the fourth quarter. The market gained over the period, although it was more volatile than usual in those years. However, October saw weaker returns and September was negative.

“The S&P 500 has been down in September 50 times since 1928, and in those years, it has actually averaged a decline of 0.41% in October and a gain of just 0.75% in Q4,” Bespoke noted. When September’s performance was positive, the S&P gained a much stronger 1.6% average in October and an average 5% in the fourth quarter, according to the firm.

Bespoke has found that although October is often associated with stock market crashes like those in 1929 and 1987 (like the ones of 1987), it is more commonly remembered as a positive month for investors. For example, the Dow gained 60% in October, with an average increase of 0.5% over 50 years. With an average of 0.9% loss, it was mostly negative in September.

Jobs, jobs, jobs

The Friday employment report is a key indicator of where the Federal Reserve will decide when it will stop buying $120billion a month bonds. This could be one of their first obstacles in this quarter.

Based on an estimate from FactSet, economic experts expect that approximately 475,000 additional jobs would be added to the economy in September. Just 235,000 payrolls were added in August,About 500,000 less than what was expected.

Ethan Harris from Bank of America, global economic research head, stated that the only way they could delay tapering was if there were very low numbers. They just do what they want, no matter how small it is, whether 100,000 or 200,000. [with the taper]”

Harris indicated that Covid remains the greatest concern, although new cases are decreasing.

“The question here is, when does the Covid Story start to fade and allow for activity to rebound?” he stated. According to him, the September pandemic will continue to impact the labor market.

He said that fear about Covid being hired was an important factor in August, and it will continue to be in September. The early signs are that people have started to feel more secure by October and should see some indications of a slowing down in job growth.

The market got some positive news on that front on FridayMerck has released promising results for Covid-19, its antiviral medication.

Tightening of central banks

The Federal Reserve could begin to unwind its easy-to-manage policies with a major event during the fourth quarter.

Last week, the central bank indicated that it was almost ready to abandon the policies implemented during the pandemic in order to preserve financial market liquidity and support the economy.

The Fed is widely expected to announce in NovemberIt will slow down its bond purchases. Fed Chairman Jerome Powell stated that he expected it to end by the middle next year.

The central banks of other countries around the globe are making similar noises, or moving to increase interest rates. The trend towards higher interest rates is what the bond market professionals expect.

In the last week, the rates have risen with the 10-year TreasuryYield rose to about 1.311% at the Fed meeting of Sept. 22 and reached 1.56% one week later. The yield fell to 1.50% on Friday.

Although the tapering trend has had little impact on markets, strategists believe it will if yields rise. QE, the quantitative easing or bond buying program was also credit with increasing market liquidity which in turn has fueled stock market gains.

The Fed is working hard to communicate what they do well in advance, and remove the surprise from what they do. Harris said that while bond yields may have risen a little, it has not been enough to be a problem for the economy. Harris said that the Fed’s real danger lies in their talk about raising interest rates… That story will be for next year.

If yields continue rising rapidly, stocks would be more vulnerable to falling rates. Tony Crescenzi (PIMCO executive vice-president) said that he expected the 10-year Treasury benchmark yield to trade within a range between 1.50% and 2.2% in this year.

Crescenzi stated that the rise in yields is due to higher inflation expectations, and Fed’s continued move towards less flexible policy. He said, “It is still moving forward with its plan of tapering and eventually tightening.” Although the taper is not supposed to set tightening dates, the clock begins ticking as soon as the taper starts.

In the week that passed, stocks were shaken by the jump in interest rates. This was especially true for tech stocks. The S&P 500 was lower by 3% for the week and the Nasdaq shed 4%.

Amazing earnings

Stock market sentiment has been buoyed by earnings, which have provided huge upside surprises and a major catalyst. However, strategists warn against companies being too cautious about reporting their third quarter profits within the next two weeks. That could signal a warning to the market.

Julian Emanuel is the head of equity strategy and derivatives at BTIG. He said that rising earnings expectations for next year and this year were a tailwind. He stated that “those in our opinion have now plateaued, and possibly peaked.” The stock market could have problems if it perceived that they had peaked and not plateaued over the medium to long-term.

The supply chain problems that have disrupted many businesses’ ability to obtain parts or products are also being watched by investors. These issues are already affecting earnings and putting pressure on margins. Some have already warned about the problem,Earnings calls are likely to include more details about these issues.

Congress managed to avoid a shutdown but there is still political tension that could linger over the markets for the fourth quarter. It will be much more difficult for lawmakers to increase the debt limit. which could become worrisome for marketsIf the government is at the limit, before any action can be taken.

Fourth quarter progresses and so does the fate of the $3.5 billion infrastructure plan. It is being opposed by Republicans, some Democrats. Harris stated that he expected it to fall to $1.5 trillion.

Additional issues

Chinese developer of property Evergrande’s failure to make its debt payments temporarily spooked the marketThis was September. They are still having problems despite investors’ hopes that they will avoid a financial meltdown.

The fourth quarter will continue to be a key story in markets as Evergrande struggles with its $300 billion debt load.

Week ahead calendar

Monday

10:00 am Factory orders

10:00 a.m. St. Louis Fed President James Bullard

Tuesday

Earnings PepsiCo

8.30 a.m. Trade international

9:00 a.m. PMI Services

10:00 AM ISM Services

Wednesday

Earnings Constellation Brands

Mortgage Applications at 7:00 AM

8:15 a.m. ADP employment

Thursday

Earnings Conagra Brands, Lamb Weston

8:15 a.m. Weekly jobless cases

3.00 PM Consumer credit

Friday

8.30 a.m. Employment Report

10:00 am. Wholesale trade