AS Wall Street prepares to get back to work tomorrow after today's Labor Day holiday, which marks the unofficial end to the summer, the question investors face in what is likely to be a volatile month is who will be dominating the action, bulls or bears?

A year ago, investors returned from their end-of-summer weekend to face rampant speculation over Lehman Brothers' fate and what would soon become the biggest financial crisis since 1929, one that would devastate several of the major investment and commercial banks, send the world's economies plunging into recession and permanently alter the financial system in the US.

The shadows as well as the relief over the passing of that crisis is still plainly evident on Wall Street, but the stock market has some new thorny questions to grapple with as investors look ahead to the final quarter of the year and the beginning of 2010.

Stocks are likely to see-saw for the next month between two schools of thought dominating the action. There's the bullish conviction that the magical summer rally which has helped the US stock market regain more than half its value in the six months since it hit bottom in March, and 15 per cent since July 10, is based on the solid ground of improving fundamentals and a recovering economy.

'This is the quarter that we see the proof of the 'green shoots' in the economy. The latest ISM number shows manufacturing is ramping up, and the increased spending will show up in revenue numbers when companies report third quarter earnings next month,' said Larry Adam, an investment strategist who expects the rally to resume in October after a modest round of profit-taking in the next few weeks.

On the other hand, there is a strong belief by bearish analysts that stocks are merely enjoying a bear market rally based not on a magical summer, but on magical thinking based on unrealistic expectations that the severe recession gripping the US economy is safely in the rear view mirror.

'There appears to be a well-ingrained buy-the-dip mentality in place. The technicals may look good, but what doesn't look too good to me is valuation, which shows the S&P 500 to be trading at its most expensive levels in seven years; and the fundamentals with the prospects of a fourth quarter GDP post-stimulus relapse running pretty high - and not currently priced in,' observed David Rosenberg, chief economist and market strategist at Gluskin Scheff.

Mr Rosenberg has been steadfastly in the bear camp for months due to his concern that the economy is not out of the woods. He is forecasting a U-shaped recovery, one that lingers at the bottom for an extended period before slowly improving, believes the economy is at risk of a 'double-dip' recession once the US government's massive stimulus programmes have been spent.

'The critical question, of course, is what happens once the heavy doses of medication wear off. We estimate that absent all the forms of government stimulus in the second quarter, real GDP would have contracted at a decidedly brown-shooty 6 per cent annual rate as opposed to the posted one per cent decline,' he said.

The current consensus forecast of 3-to-3.5 per cent growth in the third quarter, which has been the basis for much of the stock market's bullishness since mid-July, would be flat-to-negative without the Cash-for-Clunkers, government auto purchases, and first-time homebuyer subsidies, Mr Rosenberg added.

'Last Friday's anaemic employment report only reinforces my view that until we see signs of a sustained turnaround in the jobs market, all bets are off over the sustainability of any economic recovery,' he said, pointing to the fact that the headline number, which just beat estimates, masked the 637,000 plunge in the underlying number of wage and salary workers, the largest decline since March.

'The fact that 65 per cent of companies are still in the process of cutting their staff loads is quite disturbing,' he said. Mr Rosenberg is hardly a Cassandra. Pimco's Bill Gross and economist Nouriel Roubini, who forecast last year's crash, have both mentioned the possibility of a 'double dip' in the past week.

But other economists had a positive take on the jobs report. 'The trend is in the right direction and that is what matters,' argued Joel Naroff, president of Naroff Economic Advisors, whose forecasts on the economy have been spot-on since last year's collapse. 'With wages still increasing, the continued softening in job losses should lead to income growth and hopefully, a rise in spending,' which would go directly to companies' bottom lines, he said.

On Friday, investors took their time deciding on whether this latest economic news was a bull or bear signal, but with the help of positive comments from Intel's CEO on technology spending, stocks rallied to the closing bell.

The Dow Jones Industrial Average rose 96.66, or one per cent, to close at 9,441.27. The S&P 500 jumped 1.3 per cent and the Nasdaq soared 1.8 per cent. For the week, however, stocks were down. The Dow slumping one per cent, the S&P down 1.2 per cent and the Nasdaq giving up 0.5 per cent.

There will be relatively slim pickings in terms of economic data for investors to sift through for clues as to how to position themselves in this holiday-shortened trading week.

Consumer credit data is scheduled for tomorrow. Wednesday brings the key report, the Fed's Beige Book, which provides analysis and anecdotal evidence of the economic situation around the country.

With the Federal Open Market Committee's Sept 23 meeting coming up, investors will be paying particular attention to the Fed's own reading of leading indicators, as well as speeches by several FOMC members this week.

On Thursday, the Commerce Department releases international trade data for July. Friday brings the Import Price Index for July and the latest consumer sentiment numbers.