Why Stocks May Be Set for Fourth-Quarter Gains

New York Stock Exchange
New York Stock Exchange

Don'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.