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To Win in September, Stick to the Game Plan: Searching for Alpha for September 2016

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Stocks meandered for the last half of August, mainly due to concerns that better than expected economic conditions will lead to a September rate hike by the Fed (watch for the August jobs numbers on Friday for more clarity on that likelihood).  

Not only are we coming into September – typically the worst month of the year for stocks – but we’re also facing an incredibly active central bank calendar. With the ECB, the Bank of England, the Bank of Japan, and the Fed all releasing minutes or making comments, it leaves little doubt that this month will be, if anything, less mundane than August. 

So what happens if the bogeyman – in the form of higher interest rates – actually makes an appearance?  

First, it’s important to note that stocks perform admirably during rising rate periods – in fact, their return during rising and falling rates are virtually identical. So if there is a meaningful short-term pullback, the best option is portfolio rebalancing.  

Second, one should remember that the reason why there are so many doom and gloom commentaries is that bad news outsells good news.

Sure, if you want to attract the most eyeballs, Armageddon is the best call to make. But if you want to make money – at least in this case – it makes the most sense to stay diversified and not get overwhelmed with histrionic market commentaries.

Searching for Alpha Index Performance, August 2016(Click to expand table.)