Stocks enjoyed a remarkably smooth summer, with major U.S. indexes climbing to record highs on hopes that inflation was finally cooling. But as fall begins, many strategists are warning clients to prepare for a bumpier ride.

Historically, September and October have been among the most volatile months for markets. This year, investors face a crowded calendar of Federal Reserve meetings, corporate earnings reports and economic data that could shift expectations quickly.

The Forces Moving Markets

Interest rates remain the biggest question. If inflation continues easing, the Fed may cut rates further, which typically supports stock prices. But stronger-than-expected wage or price data could delay those cuts and spark a pullback. Corporate earnings will also matter, especially for technology companies whose shares have driven much of this year’s gains.

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“Markets have priced in a lot of good news,” says Alexandra Pierce, chief investment strategist at Hartwell Capital Partners in New York. “That does not mean a crash is coming. It means there is less room for disappointment, and we could see bigger swings in both directions.”

Staying The Course

For long-term investors, Pierce recommends focusing on what they can control. That means maintaining a diversified mix of stocks and bonds, keeping an emergency fund in cash and avoiding the temptation to trade on headlines. Investors who sold during past downturns often missed the strongest recovery days.

Rebalancing is another useful habit. After a strong rally, stocks may now make up a larger share of a portfolio than intended. Selling a portion of winners and adding to underweighted areas can restore balance and reduce risk without requiring any predictions.

Bonds may also play a larger role this fall. With yields still higher than they were for much of the past decade, short-term Treasury bills and high-quality bond funds offer a reasonable return with less volatility than stocks. Pierce notes that bonds can cushion a portfolio during stock market declines, though their prices can also fall if interest rates unexpectedly rise again.

Pierce also suggests reviewing fees and tax efficiency, which quietly affect returns over decades. “Volatility feels uncomfortable, but it is the price of long-term growth,” she says. “The investors who succeed are usually the ones who have a plan and stick with it when the market gets noisy.” This article is for general information only and is not personal financial advice.

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