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Healthy stock market faces big tests this week

As September's surge fades into a fond memory, the question for the U.S. stock market is: Now what?

The market shook off the summer doldrums last month, breaking out of a stubborn trading range and giving investors the second-best September on record with a gain of 8.8 percent on the S&P 500. It also racked up its best quarter in a year.

The strength of that momentum will be tested this week by a round of economic data, including the much-watched nonfarm payrolls report, and the start of third-quarter earnings season. The S&P has also been bumping up against a technical resistance level that could spark further gains if the index breaks through it.

"People are still exhibiting a lot of fear in their investment decisions, with so much money flowing into bond funds and Treasuries, that any uptick in economic data could catch investors off guard," said Michael O'Rourke, chief market strategist at BTIG in Manhattan.

September nonfarm payrolls, due Friday, are forecast to remain unchanged after a loss of 54,000 jobs in August, according to a Reuters poll of economists.

A strong September for the S&P 500 usually portends a positive October and fourth quarter, according to Birinyi Associates. When September rises 5 percent or more, October is up, on average, 1 percent, according to Birinyi's data. The fourth quarter delivered a negative result only once following such September gains - in 1939.

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