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Markets & Stocks
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Tragedy averted?
The market's good tone could mean it isn't going to see the usual autumn selling.
October 6, 2003: 10:13 AM EDT
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - The big rally that greeted investors as October kicked off doesn't mean the stock market is out of the woods. But it's pretty close.

Fall is, of course, the time of year that has seen all of the market's more memorable crashes, from 1929 to 1987 to last year. The way it typically goes, stocks begin to accelerate to the downside in September and then post some really thrilling losses in October.

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And while most observers haven't been forecasting a crash, plenty of them have been worried about, shall we say, a little bout of volatility this fall. Indeed as we headed into September it looked like the market was following a familiar script: A rally from the previous year's October bottom that runs into head winds in February; a burst higher through the spring; then a summer of sideways action that begins to deteriorate around Labor Day.

Except the deterioration didn't really come. Sure, the action was too choppy for most tastes, and the Dow, the Nasdaq and the S&P finished September underwater. But the drops weren't deep at all -- especially when you consider that most of the major economic reports that came out during the month were worse than expected. And then, of course, there's that big October pop -- in the month's first three days of trading the S&P 500 advanced 3.4 percent.

"If this strength continues, we may be able to dodge the usual fall lows," said Bollinger Capital Management head John Bollinger. "I've been raising some cash, hoping to put it to work at better levels, but I may have to put it to work at worse levels if this keeps up."

The coming week could well hold the key. Bollinger is wary that much of what's gone on lately in the market was due to fund managers' end of quarter antics. The next few trading sessions should give him a better read on how people are positioning themselves in the fourth quarter -- and whether the cash he raised is going to be a liability.

Never a dull week

As far as news goes, the week ahead looks like it's going to be a light one. The economic reports due out are decidedly second-tier, and although there is a smattering of big earnings reports (most notably General Electric (GE: Research, Estimates), on Friday), the third-quarter reporting season doesn't start for another week. (Click here for a line-up of the week's key events.)

So there will be plenty of time to sit around thinking deep thoughts about what things are like these days.

For the moment, pretty good. The economy grew at an annual rate somewhere north of 5 percent in the just-completed third quarter, and analysts are estimating that companies in the S&P saw profits grow by around 13 percent, according to Reuters Research.

The big question is whether the good news is already priced into the market, and whether that good news is going to be sustained through the fourth quarter. None of that stuff is going to be answered in the week ahead -- but, hey, that doesn't mean we can't think deep thoughts about it.

On the earnings front, it may be that the market still hasn't fully accounted for how good the news is going to be, according to Reuters Research estimates director Jerry Czarzasty.

He points out that first- and second-quarter earnings came well ahead of estimates, and it appears that analysts are sticking to their conservatism. That third-quarter estimate of 13 percent growth is up only slightly from where it was three months ago -- strange, given that the economy did so much better than people thought it would back then.

The economy remains a tougher nut. The September jobs report was cheeringly better than expected, but the economy still isn't generating the sorts of jobs that make you sit up and grin.

Nor is that likely to change much over the next year, according to Lehman Brothers chief U.S. economist Ethan Harris. With the effects of the big tax cuts and the refinance boom dwindling, and with a raft of imbalances still at large in the economy, growth is likely to be on the slow side. That will mean the improvement in the jobs picture will be slow, as well.

"It's going to feel like there's some movement in the jobs market -- instead of it seeming impossible to find a job, it will seem just difficult," said Harris. "It's not going to be horrible, but it's going to be the kind of economy that's going to be a negative for incumbent candidates politically."

Key events in the week ahead

  • Consumer credit figures for August get released Tuesday, with economists polled by Briefing.com expecting a steady reading at $6 billion.
  • August wholesale inventories, due at Wednesday, are expected to lift by 0.1 percent after coming in flat in July. Despite signs of a better economy, businesses remain cautious about building inventories.
  • Economists think the August trade deficit, due out Friday, deepened to $41 billion from July's $40.3 billion.
  • Friday also brings the producer price index -- the key read on inflation at the wholesale level. Economists expect it rose by 0.1 percent in September after lifting by 0.4 percent in August.
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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.