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Stocks Face a September Full of Promise and Peril

Adam Shell

The 10 percent summer rally gave off good vibrations on Wall Street. But summer is over.

Bull or Bear Market
Andrew Unangst | Photographer's Choice | Getty

The big question now is whether traders heading back to work can keep the bullish vibe alive in September, historically the worst month for stocks.

It won’t take long for investors to find out. A host of potentially market-moving events are on tap this month that could either upend the current rally or unleash a new up leg. In what amounts to an understatement, James Camp, director of fixed income at Eagle Asset Management, said: "There is a significant 'news calendar' in September."

Stocks are coming off a 1.98 percent gain in August, sparked by hopes the Federal Reserve (learn more) will deliver a new round of stimulus to the economy if needed, a thesis confirmed in large part by comments from Fed chief Ben Bernanke in a speech Friday.

Here are the big headlines that could move markets in September — which is ranked 12th, or dead last, in monthly performance the past 50 and 100 years, falling roughly 0.9 percent on average, says Bespoke Investment Group.

ECB policy meeting. On Thursday the European Central Bank (learn more) will meet to discuss ways to promote growth in the euro zone. Investors will be watching to see if ECB chief Mario Draghi is moving closer to a bond-buying plan similar to the Fed's quantitative easing (QE) (learn more) program in an effort to bring down borrowing costs for European governments.

"There are two potential outcomes: Either he starts the bond buying or he waits for an official bailout request," says Andrew Busch, a public policy strategist at BMO Capital Markets. "If he starts, the markets will react positively. If he waits, the markets will react negatively."

U.S. August jobs report. The number of non-farm jobs created last month is key for two reasons. Friday's report will provide a fresh read on the economy. It will also influence the Fed's thinking on whether to launch QE3, since the central bank wants to bring down the jobless rate, now at 8.3 percent. In July, a better-than-expected 163,000 jobs were created. A gain of 130,000 is expected in August. "Barring a big miss on the payroll report, I don't see QE3 happening," says Michael Dueker, chief economist at Russell Investments.

Fed's next rate meeting. Fed stimulus has been a key market driver. Whether the Fed delivers or delays QE3 at its Sept. 12-13 meeting could determine stocks' next move.

One upbeat note: Bespoke says September has been up six of the past eight years and has gained 0.12 percent on average since 1928 when the market is up through August. The S&P 500 is up 11.9 percent in 2012.