Market Insights: September Seasonality and Election Odds

Milestone Wealth Management Ltd. - Aug 30, 2024

Market Insights

Macroeconomic and Market Developments:

North American markets were positive this week. In Canada, the S&P/TSX Composite Index rose 0.26%. In the U.S., the Dow Jones Industrial Average rallied 0.94% and the S&P 500 Index increased 0.24%.
The Canadian dollar was up slightly this week, closing at 74.2 cents vs 74.1 cents last week.
Oil prices were negative this week. U.S. West Texas crude closed at US$73.61 vs US$74.91 last week.
The price of gold was down this week, closing at US$2,534 vs US$2,546 last week.
The Canadian economy grew at an annualized rate of 2.1% in the second quarter. Growth was supported by higher government spending, business investment in engineering structures as well as machinery and equipment and household spending on services.
All eyes were on Nvidia (NVDA) this week. The chip maker has been at the forefront of the AI craze and didn’t disappoint. Earnings came in at $0.68/share vs $0.64/share expected on revenue of $30.04 billion vs $28.7 billion expected, and the company said it expected about $32.5 billion in current quarter revenue vs $31.7 billion expected. The blowout results weren’t quite enough to satisfy investors though as the stock pulled back 6.38% on Thursday.
The bidding war for Paramount Global (PARA) has ended after Edgar Bronfman Jr. ended his pursuit of acquiring the company for $6 billion. The exit clears the way for Skydance, run by David Ellison, son of Oracle (ORCL) co-founder Larry Ellison, to become the new owner of Paramount.
Warren Buffett’s Berkshire Hathaway reached a $1 trillion market capitalization on Wednesday, the first non-technology company in the U.S. to reach that milestone. Shares of Berkshire have rallied more than 28% in 2024, reaching the $1 trillion threshold just two days before the ‘Oracle of Omaha’ turns 94 years old.
Canadian banks continued to roll out quarterly earnings reports:
- Bank of Montreal (BMO) reported lower than expected earnings of $2.64/share vs $2.76/share expected, with provision for credit losses of $906 million, compared with $492 million last year.
- Bank of Nova Scotia (BNS) reported better than expected earnings of $1.63/share vs $1.62/share, and its provision for credit losses was $1.05 billion vs $819M last year.
- Royal Bank of Canada RY) reported better than expected earnings of $3.26/share vs $2.96/share expected. The stock hit a new all-time high on the news.
- CIBC (CM) reported better than expected earnings of $1.93/share vs $1.74/share expected on revenue of $6.60 billion vs $6.28 billion expected.

Weekly Diversion:

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Charts of the Week:

As we bid farewell to August, investors are bracing themselves for what has historically been the most challenging month for the stock market: September. Over the past century, the Dow Jones Industrial Average (DJIA) has averaged a decline of 1.24% during this month, making it the only month with negative returns more than half the time. As we can see in the chart below, this trend continues when observing the past 50 years, posting returns of -1.28% with positive returns a little more than a third of the time, and the past 20 years, posting returns of -0.30% with positive returns just half the time. This year, however, brings an additional layer of complexity to the usual September slump. With the 2024 U.S. presidential election on the horizon, market watchers are keeping a close eye on how political factors might influence stock performance.

Source: Bespoke Investment Group

Interestingly, September's performance during election years has been slightly better than in non-election years, with an average decline of 0.58% compared to 1.37%, as shown in the first chart below. While this might offer a glimmer of hope, it's important to note that the overall trend remains negative. As we enter the crucial 50-day period leading up to Election Day, historical data suggests we might see a decline in the DJIA, followed by a potential uptick in the final week before the vote. This pattern is reflected in the second chart below, demonstrating the cautious sentiment that often pervades the market as political uncertainty looms.

Source: Bespoke Investment Group

Current betting odds for the 2024 election show a tight race between Vice President Harris and former President Trump, with Harris holding a slight edge as we can see in the first chart below. However, it's worth remembering that betting markets have not always been reliable predictors of election outcomes, as shown in the second chart below. Markets were very confident in Clinton beating Trump in 2016 and we remember how that played out.

Source: Bespoke Investment Group

For investors, the key takeaway is to remain vigilant but not overly reactive. While September's historical performance and the election cycle might contribute to short-term volatility, it's crucial to maintain a long-term perspective. After all, markets have shown resilience regardless of election outcomes in the past. As we navigate through this potentially turbulent period, diversification and a focus on fundamental economic factors rather than short-term political events may be the wisest approach. The September blues might be upon us, but savvy investors know that every challenge also presents an opportunity.

Sources: CNBC.com, Globe and Mail, Financial Post, Bloomberg, Thomson Reuters, Richardson Wealth, Bespoke Investment Group

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. Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.