Why Stocks May Be Set for Fourth-Quarter Gains

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New York Stock ExchangeDon't be surprised if the market gets off to a choppy, sluggish start this month, says Cort Gwon, director of trading strategies and research at FBN Securities. But longer term, equities look poised to follow up a strong third-quarter with more gains into the end of the year.

Stocks just enjoyed their best September in 71 years -- meaning a little profit-taking is to be expected -- and October is a historically volatile month in any case. "The fourth quarter looks very bright me," Gwon says. "The signs are there for a recovery in the economy. But the most important thing is you have a lot of cash on the sidelines."

Corporate balance sheets are at record levels, bulging with nearly $2 trillion in cash. That bodes well for more market-boosting deal activity and share buybacks. Meanwhile, bond mutual funds are enjoying record inflows, largely at the expense of domestic stock funds. At some point, some of those fixed-income investors are going to grow weary of 1% and 2% returns and move back into equities, Gwon says.

For more on Gwon's outlook from the floor of the New York Stock Exchange (NYX), see the video below.

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S&P 500 2,191.95 0.87 0.04%
DJIA 19,170.42 -21.51 -0.11%
NASDAQ 5,255.65 4.55 0.09%
DAX 10,513.35 -20.70 -0.20%
HANG SENG 22,564.82 -313.41 -1.37%
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USD (per EUR) 1.07 0.00 0.00%
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JPY (per USD) 113.50 0.02 0.02%
GBP (per USD) 1.27 0.00 0.01%

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