As we enter the fourth quarter, investors are fully engaged in trying to assess their performance and make any changes to accommodate the final three months of the year.

2015 has so far been underwhelming for the bulls who have become accustomed to double digit gains and low volatility. Conversely, the bears have finally received a brief reprieve from the relentless monotony of higher prices and eye rolling that comes with betting against the trend. 

Here is a short list of topics that will move the markets through the reminder of the year:

1. All eyes on the Fed. If you are like me, you are probably sick and tired of the “will they, won’t they” rhetoric concerning the Federal Reserve raising interest rates. Nevertheless, this topic is going to continue to dominate headlines with every new economic data point and monthly FOMC meeting for the remainder of 2015. Many of the Fed’s top officials have called for this year to be THE YEAR.  If that’s the case, they need to step up and do it. Actions speak louder than words and the market hates uncertainty.
2. Q3 earnings announcements. According to Fact Set research, S&P 500 company earnings are expected to decline by -5.1%.  Analysts have virtually zero confidence in the earnings capability of the energy and basic materials sectors. A look at a chart of either group will tell you that even a few modest surprises to the upside may provide a solid catalyst for a counter-trend rally. Low expectations will likely work to the benefit of those anticipating a rebound over the next three months.
3. Record number of new ETFs. According to Eric Balchunas of Bloomberg, the first three quarters of the year have already led to the release of 210 new ETFs with 19 new fund providers. We are seeing initial forays into the ETF field by the likes of Goldman Sachs, Dimensional Fund Advisors, and DoubleLine to name a few. Many of these new strategies feature active management or smart beta rules with the intent of beating passive indexes. Expect 2015 to be a record year for new funds, but that doesn’t mean that all of them will survive. There will likely be  further attrition that eliminates the weakest offerings.
4. High yield spotlight. Besides the typical interest rate chatter that relates to Treasuries, the next likeliest fixed-income candidate to receive an undo level of attention are junk bonds. Famous investor Carl Icahn believe they are a bubble just waiting to pop. However, that opinion fails to mention that this sector is currently testing 2-year lows and more than 7% off the 2015 highs. Junk bonds may certainly have further to fall if the market continues lower, but on a relative basis this sector has already experienced significant widening in credit spreads and may appear attractive for yield seekers.
5. Seasonality and sentiment. September lived up to its reputation as one of the more volatile months of the year and October may also warrant a level of caution. However, this is also the time of the year that has seasonally been solid for rallies to catch on. 2011 featured an August and September swoon followed by a strong finish to the year. In addition, sentiment readings from some of the major investor surveys are conveying a sense of fear that may bode well for the bulls as we close out 2015.

The Bottom Line

Despite the lurking global growth issues, the U.S. markets have shown a sense of resiliency in recent weeks. The SPDR S&P 500 ETF (SPY) made a successful re-test of the August lows and is now back to the middle of its corrective range. The longer that the market stays above those lows, the stronger the case will become for a renewed uptrend. Often what the market needs is simply time to evaluate new data and establish a pattern that investors feel confident enough in to put capital to work.