Stocks sizzled in third quarter, but will it last?

When you open your quarterly financial statements in the next few weeks, you might be both pleased and puzzled.

Despite the economic doldrums, the stock market put together a sizzling 11 percent return over the past three months, including its best September since 1939. For a time Thursday, the Dow Jones industrial average appeared headed for 11,000.

But the gains are deceptive, market analysts say. While news about the economy has improved, there's no reason to believe it's roaring back. And the big advance was driven by a relatively small number of traders playing with a lot of money.

"I think a lot of this is just misguided optimism," says Rob Arnott, chairman of Research Affiliates, an investment firm in Newport Beach, Calif. "The headwinds we face are pretty daunting."

In other words, few are calling it the beginning of the next bull market -- not with unemployment still near 10 percent and stocks bound in what market technicians call a trading range.

Still, the gains were impressive. In September alone, the Standard & Poor's 500 index rose 9 percent, the Dow almost 8 percent and the Nasdaq composite index 12 percent. Every sector of the market was up. (more)