The curtain dropped on the third quarter Friday, and the surprise to many stock investors might be that their portfolios came through the summer not much worse for the wear and tear.
Despite a harrowing global credit crunch, a continuing downward spiral in housing and record highs for oil prices, the blue-chip-dominated Standard & Poor's 500 stock index rose 1.6% in the three months.
That lifted its year-to-date gain to 7.6% -- besting the 7% advance for the same period last year.
The average U.S. stock mutual fund was up about 1% in the quarter and is up nearly 10% for the year, according to preliminary data from fund tracker Lipper Inc.
For all of the summer turmoil in markets and the financial system, "equities seem to be untouched," said Doug Peta, strategist at money manager J&W Seligman & Co. in New York.
Indeed, the Dow Jones industrial average, which eased 17.31 points, or 0.1%, to 13,895.63 on Friday, is back within 0.8% of its all-time high of 14,000.41 reached July 19.
The picture was much different in mid-August, of course. Fear of a meltdown in the financial system stemming from the housing market's woes helped spark the deepest pullback in stocks in more than four years. The S&P 500 slumped 9.4% from July 20 to Aug. 15.
But the Federal Reserve rode to the rescue Aug. 17 with a cut in its bank lending rate. It followed that on Sept. 18 with a half-point drop in its most important rate, the federal funds rate, to 4.75%.
And as usual, rate cuts worked like Xanax on the stock market: Anxiety melted away.
Now what?
Here are some key questions Wall Street will face as the final quarter of the year gets underway Monday:
Will recession worries fade or resurge?
For stock investors, it always comes down to the economy. The summer credit crunch was a problem for many companies only insofar as it raised the risk of a sharp slowdown in economic growth or actual contraction (i.e., recession). If growth fades, so may earnings, which are what underpin share prices.
The stock market's verdict so far is that recession isn't likely. But some economists aren't so sure.
Susan Sterne, head of Economic Analysis Associates Inc. in Greenwich, Conn., sees a 50% chance of recession on the horizon.
She thinks that the sinking housing market and tighter credit are bound to rattle many corporate executives, making them more cautious about their own companies' spending -- which could intensify the threat to the economy overall.
