Everything is coming up roses!

The government announced today that second-quarter gross domestic product (GDP) growth came in at 2.6%, up from the first quarter’s weak growth of only 1.2%. Consumer spending — up 2.8% — was the biggest supporter of last quarter’s growth, as Americans shelled out more money for groceries, clothing and health care. The third quarter’s GDP growth is expected to come in at 2.7%.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Also Read

The economy has expanded for eight straight years and added more than 16 million new jobs. The headline unemployment rate is resting near 16-year lows. Amazon even recently announced a “Jobs Day” next week, where it is planning to hire 50,000 people to fill its new warehouses.

Everything seems to be humming along just perfectly, and that’s got me nervous, because we’re heading straight into a few bumps in the road that could significantly derail the stock market.

Are You Ready?

We’ve all seen it. Stocks don’t go up in a straight line. There are corrections, black swans, deflating bubbles and then, of course, there’s just a good, old-fashioned accounting scandal. I was still in my early trading years when the great Enron scandal (2001) and the WorldCom scandal (2002) hammered the market. All of which was preceded by the dot-com bubble popping.

Watching the stock market implode day after day for a few years might explain why I tend to be more of a skeptic when it comes to stocks.

And when everything is looking just perfect — see the data I listed earlier — I find myself checking to make sure that my portfolio is prepped for potential disaster. You never want to find yourself unprepared for the next correction … and we’ve got a few bumps in the road that we can watch for.

Beware the Fed

The Federal Reserve will meet three more times before the end of 2017, and Fed Chair Janet Yellen has already exhibited a preference for lifting interest rates at the December meeting — see December 2015 and 2016.

Market Crashes

While Yellen & Co. are making the appropriate warning noises about weak inflation so that they have an out if they want to keep rates unchanged at the end of 2017, traders are currently pricing in a 42% chance that interest rates are climbing another 25 basis points in December based on strong economic data. But there’s still plenty of time for the odds to turn in favor of a hike if the economy remains strong.

To add to the uncertainty surrounding the Fed, it will soon begin shedding the $4.5 trillion in U.S. Treasury and mortgage-backed securities it is still holding as it struggles to get back to “normal” monetary policy.

Whether raising rates or unloading trillions in assets, the Fed could have a significant impact on interest rates and mortgages going into the next several months.

A Change in the Winds

While the Fed is determined to keep our attention, we can’t forget that we are also heading into what is typically a weak season for the stock market. According to the Stock Trader’s Almanac, the stock market has suffered an average loss of 9% in the fall from 1964 through 2016, and a total cumulative loss of 469.5% — which is larger than the slumps in the other three seasons.

The stock market has experienced 18 fall declines of greater than 10% since 1964, with October raking in the biggest losses in 10 of those instances.

Typically, the fall marks a period of tax selling — where traders sell off losing positions to register a loss for that tax year — or portfolio cleaning — where institutions will shed their losers prior to creating their year-end statements.

In short, the market likes a fall sell-off.

A System to Thrive in the Market Turmoil

History has proven that stocks have the greatest returns over time, but these approaching bumps in the road have left many Americans unsure of whether to take a chance and keep their money in the market at the risk of a crash, or pull their money out and wait for a pullback at the risk of missing a historic rise in the market.

But there is a third choice … a better choice … a way for you to make a profit in the stock market while avoiding the risk of a crash.

Ted Bauman and his team have developed a system we call the “alpha code.”

The alpha code system for our new Alpha Stock Alert trading service identifies key alpha stocks that are best-positioned to go up in both bull and bear markets … sending your profits soaring. For example, during the 2008 collapse, when the stock market lost 58% of its value, investors suffered greatly. It took nearly three years for stocks to get back to breakeven.

But using the alpha code system, investors would have crushed the market with a 220% gain!

In sum, this alpha code has the ability to make consistent money when the market soars and also when the market tanks — without taking any risky bets like shorting stocks, investing on margin or using options.

By having a strong system in place to protect and grow your wealth, you can more effectively ride over the bumps in the road.

Regards,

Jocelynn Smith

Sr. Managing Editor, Sovereign Investor Daily

P.S. Open spots in Ted’s Alpha Stock Alert trading service are filling up fast, and we will be forced to close the doors soon. You don’t want to miss out on your chance to make consistent gains regardless of market conditions. For full details and to claim your spot, click here.