In our August 1st update, we mentioned how we thought August would be a slow time for the market.   We were right, but couldn’t foresee that it would go down in history as one of the months with the tightest range of daily price change.  Now that the calm is over, we have begun to see more volatility in the market which we expect to continue over the next few months for the following reasons:

1) US Presidential election – We cannot remember an election that has been clouded by so much uncertainty.  Because of that, people tend to make emotional investment decisions which we believe will increase as the election nears.
2) Market volatility goes in waves – Periods of low volatility are usually followed by a period of higher volatility (and vice versa).   Because August was one of the least volatile months in history, we would expect a period of above average volatility in the months ahead.
3) Federal Reserve mouths are chattering – We remember the good old days when practically no one knew the voting members of the Federal Reserve.  Today, they are treated like celebrities.  When they talk, the market moves.  One member says they will raise interest rates and then a few days later another says they won’t.  It is the world’s largest Kabuki dance as central banks are dancing on a pin head trying to manipulate a “steady economy”.  Against an unprecedented, historic backdrop of negative interest rates, no one knows how this dance will end.
4) Geopolitical flash points – Countries (Iran, North Korea, China and Russia) know we will have a new leader in January.  They are stirring up trouble because they perceive the current administration as weak and believe now is a time to cause havoc than after we have a new leader in the White House.  This is likely to cause more market uncertainty and volatility.
As we mentioned in that August 1st update, it seems like most of the market disruptions in the recent past have occurred in September or October.  This year we have a market near its all-time high combined with six consecutive quarters of declining corporate earnings.  This is a time, we believe, to be cautious of putting money to work in the market.   We expect this upcoming volatility to offer investment opportunities at some point.  At that time, it may be advantageous to start investing more aggressively in the stock market.