After some market stumbles in recent weeks that erased earlier gains, stocks ended about where they started at the beginning of the quarter. However, broad economic gains means that solid fundamentals could contribute to market upside later this year. For the quarter, the S&P 500 gained 0.62%, the Dow grew 1.29%, and the Nasdaq added 1.93%.

What are some of the factors that contributed to strong market performance in Q3?

After a very slow start to the year, economic growth rebounded in the second quarter, giving investors confidence that the economic recovery was still healthy. The latest estimate of Q2 gross domestic product (GDP) growth showed that the economy grew 4.6%; while official Q3 numbers aren’t out yet, some estimates indicate that the economy may have slowed slightly in the past three months, but could still clock in a healthy 3.0% gain.

Sign Up for E-News

The labor market made great strides last quarter, adding 671,000 new jobs in the past three months. In September, hiring accelerated and the jobless rate reached a six-year low of 5.9%. To compare: In September of 2013, the unemployment rate stood at 7.2%, and the labor market added just 430,000 jobs. On the other hand, wage growth seems to be frozen, indicating that many Americans are failing to see income gains that could lead to greater consumer spending.

Strong corporate profits coming off of the second quarter helped boost markets by showing that demand is improving across many sectors. Even better, Q3 guidance was modestly higher, indicating that corporate leaders felt more positive about their chances going into the second half of the year. We’ll know whether their optimism was merited once Q3 earnings reports are released.

What could act as headwinds in the weeks and months to come?

Geopolitical issues continue to drag on market performance as the situation in Ukraine continues to simmer and parts of the Middle East roil with violence. Since these areas play key roles in global petroleum and natural gas productionsupply disruptions could have a serious impact on fuel prices.

Europe and Japan continue to struggle with stubbornly weak economic growth and low inflationprompting calls for additional central bank activity. If these major U.S. trading partners continue to experience trouble, it could weaken market outlooks this year.

The Federal Reserve was a big player last quarter, and its monetary policy decisions will likely impact market activities in the coming weeks and months. The current round of bond purchases are scheduled to end in October, bringing the Fed’s quantitative easing programs to a halt.Investors are now turning their attention to the question of when the Fed will begin raising interest rates, and speculations will likely lead to further market volatility.

Markets have been running high, with multiple indexes reaching new records in the third quarter, which can sometimes presage a pullback as investors pause to take stock of the market environment. Is a pullback certain? Definitely not. Bottom line: Domestic economic fundamentals are strong going into the final three months of the year. As earnings start trickling in, solid performances could translate into further market upside. As always, we recommend staying focused on long-term goals instead of short-term volatility and market performance.