NEW YORK, Sept 27 (Reuters) -

Investor hopes for a soft landing for the U.S. economy will

be put to the test next week, as the government releases closely

watched labor market data following a series of disappointing

jobs reports.

Wall Street's benchmark S&P 500 index is up 20%

year-to-date near a record high. With the third quarter ending

on Monday, the index is on track for its strongest

January-September performance since 1997.

Hopes for a soft landing in which the Federal Reserve tames

inflation without badly hurting growth, have helped drive those

gains, along with a 50 basis point rate cut the central bank

delivered at its monetary policy meeting this month.

Some worry that the rate cuts may not be enough to avert a

downturn, and Wall Street views the monthly employment report as

one of the more critical reads on the economy. The prior two

monthly reports have shown weaker-than-expected job increases,

raising the stakes for the Oct 4 data.

"Stocks are priced for a Goldilocks/soft landing-type

scenario," said Wasif Latif, president and chief investment

officer at Sarmaya Partners. "The jobs report could potentially

either confirm that or derail that."

Some recent payrolls reports have roiled markets,

particularly data showing an unexpected slowdown that helped

spark a sharp, days-long selloff in the S&P 500 in early August.

The index has since recovered those losses and gone on to make

fresh highs.

For the September report due out next week, nonfarm payrolls

are expected to have increased by 140,000, according to Reuters

data on Friday.

The labor data could help solidify views on the Fed's next

move at its Nov 6-7 meeting. Futures tied to the fed funds rate

currently show bets almost evenly split between a 25 basis point

cut or another 50-basis-point reduction.

"While the totality of the data will always be important,

the burden will be on incoming labor market data to provide the

Fed with greater confidence that the softening trend is

stabilizing," economists at Deutsche Bank said in a recent note.

Investors will also watch an address from Fed Chairman

Jerome Powell, set to speak on the economic outlook before the

National Association for Business Economics on Monday.

Hefty gains in U.S. stocks so far this year bode well for

the rest of 2024, if history is any indication.

Since 1950, the S&P 500 has gained at least 15% through

September in 17 instances, according to Keith Lerner, co-chief

investment officer at Truist Advisory Services. In the fourth

quarter of those years, the index rose a median of 5.4% and

posted a gain in all but three of them, Lerner found.

Still, the state of U.S. growth is a focus for investors. A

survey of fund managers earlier this month named a U.S.

recession as the top "tail risk" for markets, according to BofA

Global Research.

Garrett Melson, portfolio strategist at Natixis Investment

Managers Solutions, said the recent strength in defensive

sectors such as utilities and consumer staples reflect concerns

over a looming downturn.

Strong economic data, on the other hand, could provide a

boost for economically sensitive groups such as industrials and

financials, he said. The S&P 500 industrial sector has

gained nearly 11% in the quarter, and the financial sector

is up around 10%.

"There's still probably a case to be made that we've priced

in too much recession risk at this point," Melson said. "There's

plenty of scope for further upside into year-end."