The stock market dropped significantly on Sep 9, only to bounce back yesterday. Such volatility is the result of the Fed’s ambiguous stance regarding monetary tightening measures. To top it, profit expectations are down for this year, while stocks remain overvalued.

We are also heading toward the Presidential elections, which may lead to a correction. Hence, in order to safeguard ones portfolio from such uncertainties, we advise investors to bet on low beta mutual funds.

Markets on a Topsy-Turvy Ride

U.S. stocks suffered their worst decline on Sep 9 since the U.K.’s decision to exit the European Union, with all 30 blue-chip companies closing in the red and all 10 sectors of the S&P 500 (SPY) ending in the negative territory. Rout in equities had pushed both the Dow (DIA) and the S&P 500 below their 50-day moving averages. One the other hand, both the indices closed more than 1% higher on Monday, with more stocks advancing rather than declining. About 70% stocks advanced on the NYSE, while 27% declined.

Lest we forget, the fear-gauge CBOE Volatility Index (VIX) continues to hover near the 15% mark. Even though a reading above 20 is considered alarming, the jump to the current level is significant, considering the fact that the index was near 12 for a sustained period.

So, what is the reason behind these erratic movements? Many analysts pointed to uncertainty created by Fed officials about when and how policy rates will be changed to be the primary reason behind such gyrations. Chances of the Fed backing away from an easy-money policy are high, thanks to Boston Fed President Eric Rosengren’s hawkish comments. This has dampened investor sentiments substantially. However, concerns about an imminent rate hike ebbed yesterday following Fed Governor Lael Brainard’s dovish stance.

Rate Hike Ambiguity

Rosengren backs a gradual rate hike as he believes that waiting too long might affect some asset markets like commercial real estate. He believes that “a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy”.