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The market is up 17% this year despite recent choppiness: What experts expect from the rest of 2021

"We're not expecting things to go great guns, but we're not expecting a collapse either."

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September was a rough month for stocks. Investor fears surrounding inflation, the direction of monetary policy, and rising interest rates pushed the S&P 500 down 4.8%, cracking a seven-month winning streak. The Dow Jones Industrial Average and the Nasdaq Composite sank 4.3% and 5.3%, respectively.

The slowdown won't have come as too much of a surprise to investors who know their market history: September is historically the worst-performing month for stocks. And given the circumstances, it's not surprising that things stayed true to form, says Ryan Detrick, chief market strategist at LPL Financial. "At the end of the day, this came after a 104% rally," he says. "We were probably due for a well-deserved break."

If market history continues to repeat itself, investors could be in for a bumpy ride in the near term. "October is historically the most volatile month, and we've already seen that start to play out with three 1% moves to start the month," Detrick says. "We think October will live up to its volatile reputation."

But that doesn't mean that investors need to be running for cover. Some shakiness is to be expected given investor uncertainty around risk factors currently facing the market, but experts say the situation could look relatively rosy headed into the end of the year and into 2022.

As it stands, even with recent choppiness, 2021 has been a good year for investors: The S&P 500 returned 17% as of October 6, well above the long-term average annual return of about 10%.

Here's how the pros say you can calibrate your portfolio for the remainder of the fourth quarter and beyond.

Outlook for the fourth quarter: 'The real risk' is consumer spending

The market is forward-looking, and the risks that investors were worried about in September haven't dissipated. On the economic front, investors are worried about a recent dip in consumer confidence numbers — an important metric given that about 70% of the economy is driven by consumer spending. "For this economy, that's where the real risk is, says Brad McMillan, CIO of the Commonwealth Financial Network. "I don't care if you have the money. If you're not confident, you're not going to spend it."

Another potentially troubling sign for the economy: signals from the Federal Reserve that the central bank may soon begin winding back monetary policies meant to stimulate the economy during the pandemic. Investors are concerned they may eventually see a lift in interest rates, up from the basement-low rates that have supported stock prices throughout the current bull run.

Traders are also bracing for less-than-stellar earnings results, as swaths of the economy continue to recover from Covid-related issues, such as supply chain bottlenecks. "We've had some disappointing estimates so far," says Detrick. "We've had some unbelievable earnings over the last few quarters and that's going to be a difficult bar to clear this quarter."

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If you follow the headlines, you already know that there are other threats looming out there, too, like the risk that the Covid-19 pandemic takes another negative turn, and that partisan squabbling on Capitol Hill could result in a failure to raise the debt ceiling.

Still, experts say that things aren't as dire as headlines, or recent results in the stock market, might have you believe. McMillan thinks much of the concern over the economy, for instance, has already been accounted for by investors. "The Fed may indeed start tapering," he says. "But the market has already priced in most of what's going to happen, and perhaps even more," he says.

Though it would behoove investors to keep an eye on consumer confidence numbers, "It's important to remember that the U.S. consumer has been an all-star throughout this pandemic," says Detrick. "Will they really pull back those purse strings and not spend during the holiday season? We'd have to see that start to happen. A lot of people have lost money betting against the U.S. consumer."

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Overall, says Detrick, the U.S. economy is still at the beginning stages of a growth cycle. "We're likely to see the economy grow by 6% in 2021 and by 4% next year as supply chain issues work their way out," he says. "That's still above-average growth. We saw 2% growth for years during the last growth cycle."

And returning to the theme of history repeating itself, the market's trajectory so far this year bodes well for performance between now and the new year. "When the S&P is up by at least 12.5% after three quarters, it's finished the fourth quarter higher nine of the last 10 times," Detrick points out.

'For most investors, the issues rattling the market right now are irrelevant'

Weighing the risks and potential tailwinds, McMillan says investors would be smart to prepare for a choppy market that he ultimately expects to trend upward by year-end and into 2022. "We're not expecting things to go great guns, but we're not expecting a collapse either," he says. "The market is currently priced for a reasonably pessimistic scenario. I think the risk, then, is marginally to the upside."

Any of the risk factors mentioned above could roil markets, but Kristina Hooper, chief global market strategist at Invesco, says she sees them as posing little threat to long-term investors. "For most investors, the issues rattling the market right now are irrelevant," she says.

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If you're investing for a long-term goal, then, the pros warn against making wholesale changes to your portfolio, but if you regularly rebalance and haven't yet this year, now might be time to consider doing so. Rebalancing regularly helps you sell high and buy low, McMillan says. "Now would be a great time to rebalance back to your target risk profile."

And if the market does indeed hit the skids, he adds, don't sweat it too much. "If I were 22, I'd be delighted to see the market sell off," he says. "I could buy more assets at a higher future rate of return. Anyone in the first few decades of investing should be looking to buy cheap."

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