Oppenheimer's Webman agrees "there will be no safe haven" if rates rise – and stocks will be hit as well. But sticking with equities is a smarter bet, he adds. Any September decline in equities "could be a buying opportunity," he says. While bonds could be pressured for some time, many strategists say stocks will muddle through this unusually storm-clouded September and could end up in a better position.
So what's the bullish case? Webman says the Fed's tapering will eventually arrive, perhaps in a later month. If the Fed holds off on tapering altogether, the market would likely stage a "relief rally." When the Fed does slow bond purchases, some of the market's recent uncertainty will disappear. The same can be said of the budget deficit battle looming in Congress and the related fight over funding Obamacare, and a possible change of leadership at the Fed when Ben Bernanke steps down.
"Blaming the government is not an investment strategy," Webman says. "Financial markets don't price our political preferences. They price the future earning capacity of real businesses."
If that's the case, stocks might hold their ground. Even if the Fed tapers and rates rise, the equity outlook remains positive, he says. One of the most encouraging economic factors this year has been the ability of the housing market to continue improving despite tight bank credit and sharply rising mortgage rates. "Housing continues to be one of the strengths of the U.S. economy, along with autos and energy," Webman adds. Waning worries over growth in China and Europe are also starting to remove some of the clouds over the global economy, he notes.
"The disruptions we face next month will not be too damaging to the economy," he says. "But there might be volatility in the market."
But when some of the burning questions facing investors are answered, cruel September could end with a surprisingly strong equity market. "The stock market is in pretty decent shape," Webman says. "I maintain my optimism. I believe equities will continue to rise."