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 Market watchers believe upcoming reports might also point to a healthy economy, and might even help offset what is expected to be a sluggish earnings reporting season for U.S. companies.
"The Fed and the markets will be watching all the incoming data very closely, but it really seems unlikely we'll get enough negative data that will force them to once again lower rates," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "It will take an awful lot to bring the Fed off the sidelines, and we're heading into a historically strong part of the year."
Indeed, the Dow Jones industrial average has rallied during the final quarter for the past nine years straight. The Standard & Poor's 500 index has had a fourth-quarter sprint in 13 of the past 15 years.
The current optimism is a turnaround from Wall Street's mood of just over a month ago, when any rally seemed in jeopardy amid a harrowing tightening of credit, continuing erosion in the housing sector, and escalating energy prices. The Fed's half-point rate cut helped restore investors' faith in stocks and the economy overall.
Sheldon and other analysts say they aren't all that concerned about what the Fed does later this month. That's already been reflected in the futures that track the federal funds rate, which dropped from almost unanimous expectation for a cut to about a 50 percent chance.
"The market is really in a sweet spot for a number of reasons," said Todd Salamone, director of trading at Schaeffer's Investment Research in Cincinnati. "You felt a rate cut coming if there was bad data, and more confidence in the economy if there was good data. You really couldn't lose, and that's where we want to stay."
Much of the data out in the coming weeks will only partly reflect the effects of the Sept. 18 rate cut. Because of this, investors might have already discounted any bad news that might come out, Salamone said.
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 Minutes from the Federal Reserve's last meeting will be released Tuesday and they will be closely monitored to gauge the Fed's inclination toward another cut. However, analysts believe the real key to sending stocks higher will be third-quarter earnings.
Strong results, or even those that simply keep pace with Wall Street's already lowered expectations, might keep the fourth-quarter rally going. If third-quarter results become choppy, and if companies in their fourth-quarter forecasts hint that the worst might not be over, than fears of recession could again creep back into the market.
Standard & Poor's said blue chip companies in the third quarter will report the lowest growth rate in five years. Members of the S&P 500 were originally expected to in the aggregate report a 2.4 percent gain for the quarter, but last week, the rating agency said it now expects a slight loss overall.
That forecast might be expected to dash hopes for a strong finish to the year. However, market watchers believe it might have the opposite effect
- the fourth quarter historically is when companies take charges to balance out their books for the year, and most investors will be focused instead on forward-looking statements.
And, in an era where beating earnings expectations will send shares of those companies rallying, lowering the bar makes that easier to achieve.
"The most important point is that you have a ton of sideline money out there," Salamone said. "And, being able to jump through lower expectations might be enough to bring them back in."
[Associated Press;
By JOE BEL BRUNO]
Copyright 2007 The Associated Press. All rights reserved. This
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