*

Analyst do not expect shutdown to derail stocks rally

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Seasonality favors bulls as Q4 is typically the S&P 500's

strongest, with average gain of 2.9%

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Stock market momentum and projected earnings growth

supports

risk appetite

By Saqib Iqbal Ahmed

NEW YORK, Oct 3 (Reuters) - The U.S. government shutdown

tops investors' agenda next week as markets head into the

seasonally strong fourth quarter, with equities near record

highs bracing for an earnings-season test later this month.

A deep partisan rift in Washington led to a federal

government shutdown that risks delaying crucial economic data

and could potentially muddy the Federal Reserve's policy-easing

outlook.

Few on Wall Street expect the Washington impasse to derail a

rally that has lifted the S&P 500 by 14% to repeated

record highs, but with little in the way of major data or

earnings, the Capitol Hill drama is set to dominate investor

focus.

"The shutdown and the potential reopening ... that's going

to get almost all investor attention," said Mark Hackett, chief

market strategist at Nationwide.

Investors' main worry is that the shutdown will suspend the

flow of timely economic data.

Should the data drought last several weeks, it could cause

confusion about the Fed's monetary policy path, as the central

bank will be without government data that helps guide its

decisions. It also poses a possible drag on economic growth the

longer it extends.

But for now, there is little reason to panic, investors

said.

BULLS IN CHARGE

Despite some softness in labor data, the U.S. economy has

borne the onslaught of trade and tariff headlines well and

corporate earnings have supported stocks' march higher.

Analysts as of Thursday expected earnings from S&P 500

companies to increase 8.8% in the third quarter from a year ago,

up from forecasts of 8.0% growth at the start of July, according

to LSEG data.

"In my opinion, lack of data actually puts more burden of

proof on bears than it does on bulls," Hackett said.

Investors will get a taste of the upcoming earnings

season, with Levi Strauss and Delta Air Lines ( DAL )

set to report results on Thursday.

"The most likely scenario is the market's just kind of calm

... moving sideways during the shutdown," Hackett said.

KEY Advisors Wealth Management CEO Eddie Ghabour, who sees

the shutdown possibly stretching for two to four weeks, echoed

the sentiment.

"If we're right on the shutdown stretching out, if you get

extra stimulus in the economy in the form of two more rate cuts,

and then the government is back in business, you're going to see

a huge re-acceleration of growth in the economy and the equity

markets," Ghabour said.

Investors will get a read on what Fed policymakers were

thinking when they cut rates in September when the minutes of

that meeting are released on Wednesday.

SEASONALLY STRONG

For stock bulls, it helps that the just-started fourth

quarter is historically the S&P 500's strongest, with an average

gain of about 2.9% and a high share of positive returns,

according to LSEG data going back to 1928.

"Despite headline risks and the potential for short-term

volatility, the weight of the evidence continues to support a

constructive stance," Keith Lerner, co-chief investment officer

at Truist Advisory Services, said in a note on Thursday.

"As always, we will continue to follow the weight of the

evidence."

Meanwhile, the market's strong momentum has stock bears in

hibernation. The S&P 500 logged its 30th record closing high of

the year on Thursday.

"The shutdown is going to be the news, but I think the

underlying backdrop is really three things, seasonality, which

is positive, the tailwind of rate cuts to protect the labor

market ... and we have momentum in the markets," said Sonu

Varghese, global macro strategist at Carson Group.

"We've been overweight equities and we are continuing to be

that," he said.