What Will the Fourth Quarter Hold for the Markets?

October 2, 2017

What Will the Fourth Quarter Hold for the Markets? Photo

Before beginning, we would first like to extend our heartfelt thoughts and sympathies to all of those affected by the recent tragedy in Las Vegas.  Equity markets ended the third quarter on a positive note as optimism about the economy and fiscal stimulus in the form of tax cuts kept stocks well bid. The fourth quarter gets off to a quick start this week with some key U.S. economic data.

This week, I will be watching closely for the Institute of Supply Management's (ISM) Manufacturing Index and the September Employment report. The ISM Manufacturing gauge should show continued strength in the economy.  The market expectation is for a reading of 58, however I think we may see a reading closer to 60 as the weaker dollar supports domestic manufacturing.  Any reading over 50 represents expansion in the manufacturing sector.

The much watched Employment report will be closely scrutinized as the recent hurricanes likely impacted hiring for the month. The expectation is for 75,000 new jobs in September, well below the last six month average.  The unemployment rate is expected to remain unchanged at 4.4%.  It is hard to predict the impact of the hurricanes, although other gauges of employment suggest continued strength.

As for the markets for the remainder of the year, I expect stocks to remain well bid as third quarter earnings have the potential to exceed expectations. In this environment, I expect bonds to come under pressure and yields to make new highs for the year. As it has been for the entire year, events in Washington and geopolitical risks continue to be a wildcard. With this in mind, investors should continue to stay focused on fundamentals.

Tags: Monday Morning O'Malley | Employment numbers | Equity market | Economic data | Geopolitical risks | bond market | Tax cuts

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This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

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