What September’s Market Resilience Says About Stocks: Searching for Alpha for October 2016

By Ben Warwick

Commentary October 03, 2016 at 07:04 AM

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On September 9^th, the bears appeared to be running the table.

Investors were concerned that a month of central bank announcements would lead to a market pullback. Concerns about the end of easy money, sky-high equity valuations and lack of economic growth in Europe seemed to confirm trader's worst suspicions, as the S&P 500 fell over 2.5% that day. But in the weeks that followed, the markets were able to shake off the gloom. So what gives?

Apparently, those arguments just weren't enough to end the 7 ½ – year bull market. News of the improving domestic economy was certainly a plus, along with less hawkish news from the ECB and the Fed. And with interest rates so low, the current high valuation of stocks seem to not be enough of a catalyst to push the markets lower.

So here we are, at the beginning of the fourth quarter, historically one of the strongest for stocks.

In my view, if the worst-case scenario didn't come to fruition last month, it probably won't in the next three months. The market should rally on continued clarity in the U.S. elections, albeit with more volatility. This should encourage investors to remain diversified, but I see little reason to sell at current levels.