The third quarter ends with the obsessive focus on global central banks pivoting towards the election, a focus that will surely become even more obsessive as the final vote is counted. The differences between the candidates are stark, and their respective policies matter for investors, whether it’s related to energy, healthcare, trade, banking or taxes. But just as markets unraveled immediately following the Brexit vote, the intense anxiety was relatively short-lived. Markets adjusted, and so too will the election lead to a period of acceptance regardless of who is sworn in as president next year. In fact, it won’t take too long before we start hearing about who’s visiting Iowa and New Hampshire on a regular basis. This is the nature of markets, always looking ahead with an opportunistic eye.

The fourth quarter still has to work through significant issues, however, besidesthe election: central bank concerns, particularly with regard to their ability to foster demand, growth and inflation with the tools they have available; questions focused on earnings reports and whether or not we’ve seen the end of the earnings recession; and the seemingly unrelenting tug-of-war between the bulls and bears over the strength of the U.S. – and global – economy. As central bankers and their economist brethren remain data dependent, so too do markets, be it currencies, Treasury and global sovereign yields, commodities, equities or fixed income.

By the time the calendar turns the page to 2017, we should have some answers, more questions and considerable debate on where the economy and markets are headed. For the time being, though, we’re in the home stretch.

CENTRAL BANKERS LOOKING DEEP INTO THEIR TOOL KITS
September was an important month for investors as central banks, from the European Central Bank (ECB) to the Bank of Japan (BOJ) and the Federal Reserve, were expected to offer extended stimulus measures. Even the Fed, despite Chair Yellen’s earlier comments suggesting a rate hike was likely before the end of 2016, was expected to keep rates steady at its September meeting. Haruhiko Kuroda, head of the BOJ, was to unveil a “comprehensive assessment” of his easing program, in place since 2013. Analysts predicted that the ECB’s Mario Draghi would announce that the ECB Quantitative Easing (QE) program would be extended beyond its March 2017 deadline, with some strategists suggesting that he would also signal a broadening of the type of assets to be purchased. The results, however, fell short of expectation, with financial editorials declaring, “The Growing Challenge to Central Banks’ Credibility” (Financial Times) and “Central Bankers at Wit’s End” (The Wall Street Journal). The New York Times in August, while applauding the Fed’s low rate policy, lamented the lack of fiscal measures to help bolster growth, “low rates need to be paired with federal spending and other fiscal support. Here the Republicans have been of no help.”

The BOJ did, in fact, surprise markets by announcing that it would target the yield curve in a move aimed at pushing up long-dated bond yields with regard to short-term rates.

This is considered friendly to banks, insurance companies, and pensions. It is designed to give yield-hungry institutions a much-needed reprieve from the effects of negative interest rates. That said, the whisper surrounding yield curve targeting, is that the BOJ is running out of bonds to buy under its quantitative easing program. In addition to purchasing more ETFs, the BOJ pledged to overshoot its 2% inflation target “at the earliest possible time.” Questions remain if the BOJ can maintain its commitment on inflation since in 2013 Kuroda set a 2% inflation goal that was to be met by 2015. Now investors are waiting to see if Prime Minister Shinzo Abe does more to push for structural reform following the August announcement of a major stimulus package. His most recent comments indicate a less aggressive stance on the labor reforms investors were hoping for.

The ECB meeting surprised markets by doing very little save for disappointing investors. Analysts still think that Draghi could extend the bond buying program currently in place beyond its March 2017 deadline, or announce a newly structured program that would open the possibility for other targeted purchases.

Draghi stressed that while monetary policy will continue to support the economy and ensure price stability, consistent with central banks’ mandates, “monetary policy alone cannot lead to balanced growth.”

Conservative German politicians are demanding that the ECB change course and allow rates to rise so pensioners, savers, insurance companies and banks can benefit.

The rhetoric has intensified to the point that Mario Draghi’s policies were blamed for the rise of the far right party, the Alternative for Germany (AfD), a group that began in opposition to eurozone bailouts and now has transitioned into the anti-immigration party. If the ECB intends to extend the March deadline and increase purchases to include other assets, it’s crucial that Germany is on board. Negative interest rates are also exacerbating the plight of Germany’s largest bank, Deutsche Bank, which has seen its share price reduced by nearly 50% in 2016. Headlines in Germany similarly blame the ECB’s policies for difficulties in the entire banking sector, but especially with regard to Deutsche Bank, once a global leader.

While the Federal Reserve was not expected to raise rates in its September meeting, Chair Yellen seemed intent, in a mildly hawkish way, on telegraphing that a rate hike could be coming this year.

What’s perplexing about this is that economic data continued to be mixed rather than a clear trajectory of strengthening. The Federal Open Market Committee (FOMC) lowered growth projections for 2017 along with reducing expectations for the number of rate hikes over the next couple of years. In terms of growth, the committee’sconsensus growth targets remain muted, between 1.8% - 2% a year through 2019 and 1.8% thereafter. Even with a softer economic underpinning, the statement said that the balance of risks are “roughly balanced,” a term associated with a Fed moving closer to raising rates, and Chair Yellen observed that she sees a stronger case for an interest rate increase.

Even with the stronger, more direct language, many analysts remain skeptical that the Fed will move in December. There are those who think a move could be for other reasons, perhaps a nod to Boston Fed President Eric Rosengren’s concerns – and dissent at the September FOMC meeting – about low rates stoking financial instability. Just as with the BOJ’s move to aid financial institutions and pensions, perhaps the Fed also sees the need to ease the pressure stemming from their “lower for longer” policies. Along this line of thinking, there’s also the possibility that the Fed needs more basis points in its tool kit to be deployed if the economy decelerates further. These reasons provide avastly different rationale for raising rates, but one which Chair Yellen has yet to acknowledge. So far at least, market gauges see a 50% chance that the Fed moves in December.

Indeed, the predominant concern towards central bank policy is the growing lack of credibility in their ability to induce growth, and whether their actions are stalling, if not damaging, growth prospects. To be effective, investors and the broad citizenry need to believe that inflation based on a stronger economy is at hand. Looking at the current mix of data, questions abound as to the strength of the underlying economies. “All of this shows that the era of relying on central bankers as economic saviors should be coming to an end,” writes The Wall Street Journal. “Whatever the earlier disputes about post-2008 policy, the recovery from stagnation that central bankers promised has not materialized.

”While The New York Times recommends that Congress should help stimulate the economy by “borrowing and spending” while rates remain low, The Wall Street Journal, not surprisingly, advises the next administration to outline a growth agenda based on tax reform and regulatory overhaul, amongst other things. “The central bankers have lost their mojo, if they ever had it.”

WHAT WILL EARNINGS TELL US?
With central bank largesse underpinning markets, earnings fundamentals have been less of a priority than what we hear from central bank leaders. But if monetary efficacy is waning, it seems logical that fundamentals will once again become a key component for markets, especially as markets reach for new highs. Projections currently are that third quarter earnings will continue to be soft, but stronger than the last quarter, suggesting that the earnings recession has ended, or at least abated. Key will be top-line revenue growth, which gives us a picture of demand and reflects a broader perspective of overall economic growth.

Corporate guidance should play a crucial role as well, as investors want to hear what companies are hearing from their customers. The Fed’s weaker-than-expected growth expectations, coupled with doubts over whether the Fed will actually raise rates in December, should contain the U.S. dollar, helping companies with their exports. Lower rates, too, keep borrowing costs attractive.

The challenge for companies amid a backdrop of low inflation is pricing power, without which wages ultimately suffer as companies struggle to keep margins intact. During the next couple of months, the pace of mergers and acquisitions should pick up as companies seek to expand their businesses in a slower growth environment. Deal flow typically serves as a positive catalyst for markets, and the fourth quarter should be no exception.

THE HOME STRETCH
Despite all of the noise from the campaign trail, the seemingly non-stop parade of central banker pontificating, lingering questions over the Brexit vote and the possibility of a similar referendum in Italy, not to mention increasing talk of a recession some time in 2017 and concerns over China’s looming debt problems, markets will persevere providing opportunity somewhere. Just as September and early October are typically difficult months for the market, December tends to be positive. And by then we’ll know who’ll be in the White House, and as important, who will lead Congress. Gridlock never looked so good, and most likely the markets will agree.

Quincy Krosby is chief market strategist for Prudential Annuities.