Market Insights: Seasonality - The Heart of the Year

Milestone Wealth Management Ltd. - Sep 30, 2022

Macroeconomic and Market Developments:

  • North American markets were down this week. In Canada, the S&P/TSX Composite Index declined 0.20%. In the U.S., the Dow Jones Industrial Average was down 2.92% and the S&P 500 Index dropped 2.91%.
  • The Canadian dollar fell this week, closing at 72.38 cents vs 73.56 cents USD last Friday.
  • Oil prices were up slightly this week. U.S. West Texas crude closed at US$79.67 vs US$79.31, and the Western Canadian Select price closed at US$57.77 vs US$56.79 last Friday.
  • The gold price was positive this week, closing at US$1,662 vs US$1,644 last week.
  • The turmoil in the U.K. bond markets continued this week, set off by new Prime Minister Liz Truss’ announced tax cuts and stimulus last week. U.K. government bonds, knows as Gilts, sold off so severely at one point that the Bank of England was forced to intervene, promising to buy up bonds “on whatever scale necessary” in an attempt to prop up bond prices. Interest rates on the 10-year government bond fluctuated between as low as 2.901% on September 1st and as high as 4.476% on September 26th, before closing this week at 4.083%.
  • Brookfield Asset Management (BAM.A) said its board has unanimously approved the distribution of 25% of its asset management business and the current company will split into two publicly traded firms. The parent will be renamed Brookfield Corp. and will own 75% of the asset manager, which will take the name Brookfield Asset Management Ltd. There will be a meeting of shareholders on November 9th to vote on the proposal.
  • Calgary-based Enbridge (ENB) and 23 First Nation and Métis communities announced an agreement whereby the communities will collectively acquire an 11.57% non-operating interest in seven Enbridge-operated pipelines in the Athabasca region of northern Alberta for $1.12B. The company also announced it has acquired Tri Global Energy for $270 million in cash and assumed debt. Tri Global is currently the third largest onshore wind developer in the U.S., with a development portfolio of wind and solar projects representing more than 7 GW of renewable generation capacity.
  • Volkswagen completed their spin-out IPO of Porsche AG on Thursday, at a valuation of 75 billion euros in Germany's second-biggest IPO. Cornerstone investors including Qatar Investment Authority, T. Rowe Price, as well as sovereign wealth funds from Norway and Abu Dhabi, purchased 40% of the share offering, with approximately 25% of the shares going to the Porsche and Piech families.
  • In Canadian economic news, Statistics Canada noted Real (after inflation) GDP rose 0.1% in July, and estimated Real GDP was essentially flat in August. Economists had expected the August estimate to show a modest rebound, while predicting growth to slow through the second half of the year due to higher interest rates and the prospect of a recession in 2023.
  • Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled Watching 2-yr UST as Guide for the Low: DWYER VLOG

Weekly Diversion:

Check out this video of a modern David vs Goliath.

Charts of the Week:

The first three quarters of this year have certainly been one of the most difficult market environments for asset managers to navigate over the last 30 years, especially with the sharp decline in U.S. Treasuries and Canadian Government bond markets, which many consider to be a haven. There is a reason why people consider this part of the market to be a haven. Looking back to 1977 using the Bloomberg U.S. Aggregate Bond Index, this year has been by far the worst for bonds. This index is an aggregate one that includes all government bonds and investment-grade corporate bonds. In those 45 years, bonds in the U.S. have fallen in value over a calendar year only five times, with the most significant decline being just 2.9% in 1994. So far year-to-date, this index is down 14.35% as of September 29th, so when we say a sharp decline, that is an understatement considering the low-risk characteristic of this asset class. There is still one quarter to go this year, but with rates continuing to have upward pressures exerted on them due to inflation, it doesn’t look as if there is a high probability of a sharp turnaround for this market. Perhaps that will be a 2023 headline.

If you look specifically at long-term (20+ years) U.S. Treasuries using the exchange-traded fund (ETF) from iShares (ticker: TLT), the current year-over-year decline for TLT is over 30%, a down year for the ages. For a part of the market that many consider to be safe and boring, that is a shocking number. As per, which is run by the U.S. Treasury Department, “treasury securities are considered a safe and secure investment”. For the last 40 years in the investment industry, when equity markets hit turmoil, market commentaries would include something along the lines of “investors rotated into the safety and security of Treasuries”. A good example of this is the 2008 Global Financial Crisis, where the calendar year total return for this ETF was +33%. Going back to the inception of this ETF in 2003, this has been the worst 1-year period for long bonds on record. The decline is even more than 2009 after bonds sharply retreated from a massive increase in value due to the Global Financial Crisis. It would also be surprising to most to hear that long-term U.S. bonds are down more than the tech-heavy NASDAQ stock index this year.

Source: Bespoke Investment Group

One positive for equities, on the other hand, in terms of where we are in the calendar year, is that we are now entering what is normally considered the strongest period for equities. In fact, as the following chart shows, from 1991 - 2021 the best time to invest based on rolling median three-month returns for the S&P 500 is between late September and early October. Historically, the best day turns out to be October 10th with a median forward 3-month return of almost 7%. This would surely be welcomed and well-timed to alleviate some of the drawdown the markets have experienced this year. The second chart looks at the frequency of positive forward 3-month returns, and this Tuesday, October 4th is the historically best day of the year with a positive rate of almost 90%.

Source: Bespoke Investment Group

Last week, we discussed how the widely followed weekly bearish sentiment survey from the American Association of Individual Investors (AAII) went over a level of 60% for only the 5th time since the start of the survey in July 1987. We noted that the forward 1-year return for the other occurrences averaged over 30%, close to four times the historical average for all other periods. We wanted to add to that by illustrating these points in time on a chart of the S&P 500 (green arrows below), to help you visualize how rare this is. On the positive side, the only two periods of time this has occurred (1990 and 2008/9) were at or near the start of two of the longest bull markets on record.

Source: SentimenTrader

To finish this week’s charts, with U.S. midterm elections coming up on November 8th, we wanted to highlight where we are currently based on the 4-year U.S. Presidential Cycle. Historically, the second year of the 4-year cycle has been the worst. This year (red line) has no doubt been subpar even the normal trend (blue line). However, based on seasonal trends, in the entire 4-year cycle, this may now be the best time to be buying stocks. Long-term investors could well be rewarded.

Source: All Star Charts

DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges.

Sources:, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, Bespoke Investment Group, Thomson Reuters, All Star Charts, SentimenTrader, AAII