The beaten-down stock market may get a slight reprieve as the calendar turns to October

Published Fri, Sep 30 20221:37 PM EDTUpdated Fri, Sep 30 20224:22 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The stock market shuddered into the end of September, with the S & P 500 breaking through its June levels and plumbing new lows for the year as big swings in the bond and currency markets have kept investors on edge. The S & P 500 dropped more than 8% in September for its worst month since March 2020, completing one of the ugliest turnarounds in market history. According to Bespoke Investment Group, this was the first time that the S & P 500 finished down for the quarter despite being up more than 10% at one point. But markets don't go straight down forever, and history provides some hope for a near-term rebound. According to Ryan Detrick of the Carson Group, the S & P 500 has risen in October in five of the six previous times where it fell 7% in September. The one outlier, however, was harsh — a nearly 17% drop for October in 2008. History also suggests that this bear market, which dates back to January, could be close to its bottom, according to Bank of America's Michael Hartnett. "S & P 500 in 20th bear market past 140 years; ave peak to trough decline 37.3%, ave duration 289 days ... history no guide to future but history says bear market ends Oct 19th 2022 (35th anniversary Black Monday) with S & P 500 @ 3020," Hartnett wrote in a note to clients on Thursday. The historical trends and oversold indicators are leading some Wall Street pros to call for a rebound, at least in the short-term. Citi U.S. equity strategist Scott Chronert said Thursday on CNBC's " Squawk on the Street " that the market is set-up for a " relief rally " in the fourth quarter if the next batch of earnings reports hold up as he expects. "It won't take much in terms of a shift of perception around the interest rate front, combined with steady fundamentals through Q3 to trigger a rally," Chronert said Thursday. Chronert said in a note on Thursday that Citi is overweight health care, information technology and materials heading into the fourth quarter, tilting its model portfolio toward growth to capture some short-term upside. To be sure, the beginning of October also means that the midterms could become a bigger factor for markets and keep some investors from jumping back in just yet. Labor market check-up With inflation remaining stubbornly high and Federal Reserve officials pledging that they will tighten policy until prices normalize, many economists and investors have been ratcheting up expectations for a recession in the U.S. One area that is still providing some hope for a so-called "soft landing" is the labor market. The optimistic theory is that the U.S. can lower the number of job openings, taking upward pressure off of wages, without causing significant layoffs. That theory will be tested in the week ahead, with job openings data and the September payrolls report on the docket. But it is a hard test to pass. "At this point, I think we are at the point where good news is bad news ... given the intense focus from the Fed on inflation," said Angelo Kourkafas, investment strategist at Edward Jones. "From a markets perspective and a Fed perspective, we probably need to slow down the rate of job gains," he added. There have been signs of moderation, with large tech companies announcing layoffs and hiring freezes. Still, jobless claims fell back below 200,000 in the last week , suggesting that the weakness is Silicon Valley has not yet spread across the country. The labor market, and the economy as a whole, has a difficult needle to thread. But after such a terrible stretch, investors may be ready for any piece of news they can find that hints the Federal Reserve can take its foot off the gas and avoid a major recession. "Is now the time to think about what can go right? Because so much has gone wrong the first nine months of the year," Kourkafas said. Week ahead calendar Monday 9:45 a.m. Markit PMI Manufacturing 10:00 a.m. Construction Spending 10:00 a.m. ISM Manufacturing Tuesday Earnings: Acuity Brands 10:00 a.m. Durable and factory orders 10:00 a.m. JOLTS job openings 11:45 a.m. Fed Governor Philip Jefferson Wednesday Earnings: Lamb Weston, RPM International 8:15 a.m. ADP Employment Survey 8:30 a.m. Trade Balance 9:45 a.m. Markit PMI Services 10:00 a.m. ISM Services PMI Thursday Earnings: Constellation Brands, McCormick & Company, Conagra, Levi Strauss 8:30 Jobless claims 1:00 p.m. Fed Governor Lisa Cook 5:00 p.m. Fed Governor Christopher Waller Friday Earnings: Tilray 8:30 a.m. Nonfarm payrolls 10:00 a.m. Wholesale inventories 3:00 p.m. Consumer credit