Advisers are bracing for a September market storm

The usual volatility could be enhanced by the Fed, geopolitics and the presidential election

Aug 31, 2016 @ 1:30 pm

By Jeff Benjamin

+ Zoom

As financial advisers prepare to relax over the Labor Day weekend break, many are also bracing for an increased focus on the kinds of market volatility that typically comes with September.

With perspectives ranging from, it happens every year to it's going to be worse this time, advisers are hunkering down for increased client communications and portfolio adjustments.

“I have no idea why, but every year our phone rings off the hook right after Labor Day, and that's the way it's been for 30 years,” said Tim Holsworth, president of AHP Financial Services.

While Mr. Holsworth said is he is expecting about five times the typical amount of client inquiries over the next few weeks, he isn't expecting much beyond the usual questions about market outlooks and account balances.

Meanwhile, Ed Butowsky, managing partner at Chapwood Capital Investment Management, is digging in for an increasingly intense market environment.

“I fully expect there to be a lot more volatility throughout the rest of the year, and it has everything to do with slowing global economic growth,” he said.

While Mr. Butowsky isn't advising clients to move to cash, he is recommending they rebalance equity allocations that have grown out of target range.

“If you're over allocated to equities, get out of this friggin' market,” he said. “The GDP growth forecasts are being lowered, and earnings forecasts have already been lowered, and are going to be lowered further.”

Mr. Butowsky believes the stock market is already overvalued by about 10%, but said the ongoing earnings revisions will likely result in stocks being 20% overvalued.

Riding the stock market wave by gradually increasing the allocations to equities has made a lot of financial advisers look really smart, according to Mr. Butowsky, but he said now is the time to come back to reality.

“The argument that there's nowhere to go except equities is wrong, and you should be out of the advice business if that's your philosophy,” he said. “There isn't one serious fact supporting the market going higher, and I think you'd be a fool not to be getting ready for a bad market.”

September and October have historically been the most volatile months for stocks. But, dating back to 1928, September has produced an average loss of 1%, while October has averaged a 40 basis point gain.


History, combined with the start of the presidential debates during an unprecedented election year, a potential rate hike by the Fed, and rising geopolitical risks, could make this September more interesting than usual.

“This presidential election is the mother of all uncertainties,” said Leon LaBrecque, managing partner and chief executive officer at the wealth management firm LJPR Financial Advisors.

“I think a lot of people took a nap in August, but they will be paying attention in September,” he said. “I think there will be a lot of things going on, and there will be lots of volatility.”

With both stocks and bonds hovering near historic highs, Mr. LaBrecque said he is rebalancing in select assets classes, as opposed to the more general process of cutting from stocks and adding to bonds, or vice versa.

“In terms of the Fed, I think they will raise rates this year, but I think it will be a big yawn to the markets,” he said. “But the price of oil could be a major factor. All you need is for one thing to go wrong somewhere and the price of oil could go through the roof.”

Blair duQuesnay, chief investment officer and principal at ThirtyNorth Investments, described the Fed as a “wild card” that has “excelled at finding excuses not to raise rates.”

With that said, Ms. duQuesnay, said she did make some adjustments to client portfolios heading into September.

“The common response from clients was that they were relieved and reassured by the changes because they were concerned about the presidential election,” she said. “Since markets are fundamentally human, I suspect this nervousness to rear its head at some point this fall.”

Mark Reitz, owner of Reitz Capital Advisors LLC, doesn't expect a rate hike until at least after the November presidential election, but he does think concerns about a hike and the presidential debates could increase the level of market volatility in September.

“We are asset allocators and not long-short traders, thus, I feel blessed with the returns our domestic markets and allocations have provided this year,” he said. “Our firm has been underweighted international and emerging markets and will continue with this strategy.”

Mr. Reitz added that by delaying the next rate hike, the Fed continues to bolster dividend-paying assets.

“I'm looking for a reverse in this trend, similar to the second half of 2015 and the same reaction to the next rate hike as January 2016,” he said. “By no means is it time to bet against the U.S. economy and stocks yet. Instead, this is the perfect opportunity to book profits, rebalance, reduce beta and risk in portfolios.”


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


3 themes shaping your business now

If there are three overriding themes for advisers right now its succession planning, acquisition and hiring millennials. Financial adviser James Loftin discusses how his firm is tackling all three.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

10 signs your client is cheating on you

Sure signs that clients may be on the way out the door.

Morgan Stanley sees slower fee-based asset flows on fiduciary rule delay

Flows to advisory accounts, while still higher than the start of 2016, dropped off more than 20% from Q2 and were the lowest in a year.

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

Finra ranking brokers in effort to crack down on industry's bad apples

All 634.403 reps have been ranked based on factors such as prior regulatory disclosures, disciplinary actions and employment history.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print