Manufacturers enjoyed big gains on Wall Street in the third quarter, outperforming the S&P 500, as signs of a faltering U.S. recovery sent investors piling into companies like Caterpillar Inc. and Cummins Inc. that generate most of their sales overseas.

But the sustainability of those gains will be tested this month as the big industrials report their quarterly results and update investors on the outlook for the rest of the year.

The numbers themselves are expected to be strong, lifted by robust sales in places like Latin America and Asia, where high commodity prices and aggressive infrastructure investment are fueling demand for capital goods. But the companies, always reluctant to project too far into the future, are expected to be especially guarded about their outlook because of the many uncertainties they suddenly confront, not the least of which is the apparently stuttering rebound in the United States, still the world’s largest economy.

“We’re heading into a year that could be very disappointing,” said Alex Blanton, an analyst at Ingalls & Snyder who has covered U.S. manufacturers for nearly 40 years.

“I think earnings will be pretty good this quarter. But I’m concerned about next year.”

The nagging question is simple: How long can the rest of the world continue to grow, and provide a lucrative market for U.S. manufacturers, if unemployment, stagnant wages and high debt levels back home crimp U.S. consumer spending on the goods those overseas countries export?

Muddying the waters are next month’s U.S. mid-term elections, which are widely expected to erode the majorities President Barack Obama’s party enjoys in Congress and create a policy-making muddle in Washington.

“Gridlock is normally looked on favorably by the markets,” Blanton said, “but that’s when you have a reasonably good economy. Right now, we need to get stuff done.”

CURRENCY WAR CONCERNS GROW

Another issue for multinational manufacturers is the sudden saber-rattling over currencies, triggered by China’s exchange rate policies. Critics say those policies have kept the yuan artificially undervalued and boosted China at the expense of the rest of the world.

Frustration with Beijing’s unwillingness to let the yuan appreciate meaningfully is leading many analysts, including Don Straszheim, former chief economist at Merrill Lynch and now head of the China team at ISI Group, to warn that a currency war may be looming — a war that could be every bit as destructive to world trade and corporate profits as a tariff war.

“Significant event risk is building around China’s exchange rate regime and the potential for more countries trying to devalue their way to economic health,” Straszheim said.

“Many countries are now contemplating new unilateral actions that they believe serve their best interests. This can be ugly.”

Blanton agrees.

“I don’t see where the enthusiasm is for next year’s economy and results,” he said. “The only time I’ve felt worse was at the end of 2007, when the housing market was falling apart.

“First of all, we’ve got this currency thing going on, which could interfere with world trade. That’s part of my concern about next year. Because if anything happens to the growth rate in these developing countries, then you remove a big prop for these stocks. The U.S. isn’t going to carry them. Then we have U.S. housing, which isn’t recovering. Foreclosures are now being stretched out.”

Even if a full-blown currency war is avoided, continued anti-China rhetoric in the United States could create headaches for U.S. manufacturers trying to site new factories there to take advantage of the country’s blistering growth

Straszheim worries Chinese officials’ response might include “evolving a new, tangled set of regulations, approvals, sign-offs, processes that amount to a ‘runaround’ for American companies trying to operate in China.”

OTHER ISSUES TO WATCH

Industrial companies like General Electric, 3M and Caterpillar have been active in the M&A market in recent months, using some of the billions they stockpiled in the aftermath of the credit crunch to buy other companies.

That has fueled all kinds of speculation, including talk of a bid by Terex Inc. for a German crane maker and renewed talk that Caterpillar, keen to increase its mining business, may buy either Bucyrus International Inc. or Joy Global Inc.

During earnings conference calls, investors will likely be pushing management on their view of things.

“These guys are sitting on a lot of cash,” said Adam Fleck, a senior stock analyst at Morningstar. “They did a great job managing their inventories and working capital during the downturn, quickly laying people off and managing costs.

“We’ve obviously seen the M&A market really start to heat up recently. How they deploy that capital will be critical for investors going forward.”