As the third quarter ends, the focus this coming week will be on the September jobs report, which could deliver proof that employment is improving enough to justify the Fed's move away from stimulus.

So, even with no Fed action or meeting on the near horizon, the week ahead is also about the Fed and its anticipated tightening regime versus other central banks. The European Central Bank meets Thursday and is expected to provide more details about its asset purchase program as the Fed moves away from bond buying-a phenomena that has helped give the dollar index a record 11 straight weeks of gains.

Economists expect to see about 215,000 nonfarm payrolls added in Friday's September jobs report, after August's disappointing 142,000-the first sub-200,000 report in seven months.





"The jobs report will let us know whether or not the Fed is going to have the ability in six months to do something, and the hope is you do get something like 215,000 but at least we do have a resilient economy even if we don't have a strong one. At least we'll have proof we're muddling in the right direction," said Zane Brown, fixed income strategist at Lord Abbett. "As for the ECB, we're hoping (ECB President Mario) Draghi comes up with something other than words."

Citigroup economists forecast payrolls at just 175,000, but they see continued solid improvement in hiring. "However, a calendar bias and payback from the surprisingly strong start of the year point to another soft employment reading for September. Since 2000, initial summer payroll estimates contained some of the weakest gains reported for the year," they noted.

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With plenty of Fed speak but no one single event to frame it, the talk in markets this past week increasingly focused on the Fed's final launch of the last round of quantitative easing in October and the anticipated wind down in November of bond buying.

That event and the months of speculation ahead of a first rate cut sometime next year has already brought a new level of volatility to markets that strategists expect to see continue across different asset classes. The VIX (^VIX), representing volatility in the S&P 500 (^GSPC), was up nearly 23 percent for the week.

The Dow (Dow Jones Global Indexes: .DJI), for instance, saw triple digit moves each day of the past week, for the first time in 16 months.

"We're getting closer to the first Fed tightening and what you should expect is happening and the volatility regime is starting to normalize. I think you'll have more volatility ahead and what you are starting to experience is what to expect going forward," said Russell Koestrich, BlackRock chief investment strategist.

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Brown agrees the markets are heading for a new period of volatility and he says ultimately, the Fed's rate hikes will be negative for the bond market.

"I think we'll have volatility because of the composition of the Fed, and because we're getting closer to how aggressive they're going to be and the reality of higher rates ... Even high yield is likely to give you less than coupon returns in the next year, and this will cause investors to examine their allocation between stocks and bonds. I think stocks end up doing okay," he said. While volatile, "bottom line stocks will outperform."

Stocks finished the week lower, even with two strong days of gains. The Dow ended the week, down nearly 1 percent at 17,113, while the S&P 500 ended the week at 1,982, a decline of 1.4 percent. The dollar index was trading at a four-year high with a gain of more than 1 percent in the past week. Treasury yields were higher Friday, with the U.S. 10-year at 2.53 percent in afternoon trading.



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Some parts of the markets were hit harder, including those most sensitive to Fed tightening or a higher dollar, and they led on the downside. That included small caps, evident in the Rydex Russell 2000 (NYSE Arca: EWRI); emerging markets-in the iShares MSCI Emerging Markets ETF (NYSE Arca: EEM), and junk bonds-SPDR Barclays High Yield Debt ETF (NYSE Arca: JNK).

"I think part of the market is in a mini correction mode. Emerging markets pulled back a fair amount since the summer," said Koesterich. He said the stocks may be more volatile but that does not necessarily mean bigger losses. "I don't think anything fundamentally changed. If you have a decent earnings period, which I expect, and the data comes in strong, but not too strong, I think the markets can recover."

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