Spooky Season?
“Sell Rosh Hashana, Buy Yom Kippur” – that’s an interesting adage referring to the seasonality of financial markets. Investors are usually cautious this time of year because markets have historically struggled between September and October. However, despite some summer turbulence, September ended up being a decent month, especially after the Federal Reserve finally decreased interest rates for the first time in over a year.
As of writing, markets are at their all time highs, even in the face of government shutdowns (we will discuss this later), tariffs, geopolitical tensions and other noise that have the bears gnashing their teeth. It is important to note that the Nasdaq 100 has just posted six consecutive months of gains. That’s the longest winning streak since 2017, and while rare, the history is clear -- strength tends to beget more strength. Across the six prior prolonged streaks since 1985, the Nasdaq 100 was higher one year later every single time, with an average return of 17.6%, and each one occurred inside a major bull market. This kind of consistency is hard to ignore, because we believe that these streaks do not show up randomly, nor are they signs of exhaustion. Rather, they are signs of persistent demand inside strong bull market phases. Momentum like this usually resolves higher, not lower, and if the trend follows the script, the next big move may not be done.
In terms of our performance, we are pleased to advise that in our Large Accounts Models (typically $150,000+), we closed the month of September up 20.4% year to date in the All Equity (stock) Mandate versus our Global Blended Benchmark of 18.38%. The Growth Mandate has returned 17.6% year to date versus our Global Growth Blended Benchmark of 15.23%, and the Balanced Mandate finished last month at 14.3% year to date versus our Global Blended Balanced Benchmark of 12.11%. Please note that all portfolio numbers are after fees and may differ slightly between accounts. The mid-sized accounts ($70,000-$150,000) were all few points lower but still performed well.*
*Performance numbers come from an average account in each model. The Benchmark comes from a blend of ETFS – for example the benchmark we use for our balanced Accounts is made up of: Blended Balanced Benchmark (40% Fixed Income (XBB), 30% Cnd (XIC), 18% US (SPY), 12% Int (EFA) as per SIACHARTS.com.
We remain invested and in the Green Zone across our long term indicators. Currently, there are no major signs of a downward breakout or an increase in volatility, and if the markets hold, we expect to deploy any remaining (and new) cash this month. We are headed towards what are historically known as the best few months of the year for markets, and we anticipate participating in the upside of the seasonal Santa Claus rally barring any unforeseen circumstances.
Blocking Out the Noise
As we’ve discussed in previous Newsletters, there continues to be a lot of noise (and doom and gloom) in the news cycle, and we understand the concerns. We want to reiterate:
1. We don't care who or what party is in power!
It has been interesting to see in the U.S. that when the Democrats were in power, the Republicans thought the administration would collapse the stock market and economy by their spending, crime, and immigration policies. The result? The markets performed very well in 2024.
Now that the Republicans are in power, it is the Democrats and the other half of the country who have believed since November that this administration will destroy the economy and financial markets with their tariffs, border policies, and toughness on crime and immigration. The markets have ignored all this and have done very well again in 2025!
2. Naysayers on both sides continue to get it wrong!
Do we have our own personal views on who is better at running a government or economy? Sure, but we understand that is our own personal view and bias. That has not, and should not, have anything to do with our investment strategy!
The markets rarely seem to reflect the short-term policies of any person or party. Instead, to build a portfolio, agnostic and unbiased investors should look at two things -- the Fundamental and/or the Technical.
The Fundamental investor looks at the macroeconomics and reporting, such as the job numbers, housing, interest rates and inflation. Then, to determine the markets and companies to invest in, they drill down to the financial reports, such as revenues, debt ratios, management, value and growth outlook, and projected earnings. The only downside to that view, in our opinion, is whether you are catching all the available information. Did you miss an important piece that can affect the market, sector or company? Was some of the data not gathered or unavailable or just unknown at the time? Are your personal views affecting your conclusions?
Those questions are why we see many analyst prognostications and reports get it completely wrong. They may often be subjective rather than unbiased, and analysts and investors alike can also "fall in love" or just as quickly “learn to hate” a stock. Objectivity can get lost too easily during the process. Sometimes, the report may be extremely well-prepared, but the stock price moves in the opposite direction, which is a clear indicator that something was either missed or misinterpreted.
So, if we don't need to listen to political pundits and media hacks on either side of the fence, and economists and analysts may get it wrong based on insufficient information, what should we do?
3. Follow Price
We use "Technical" investment strategies because it only follows price, and we believe that price is the ultimate truth.
The Technical investor believes that no matter who is in power, who is liked or disliked, what the market is doing, where a sector is headed or how a company is performing, all available sentiment and information will be captured and built into the final Price. Isn’t that what investors ultimately actually want -- to be on the right side of the price and in stocks whose prices are stronger relative to others.
We firmly maintain that all we need to do is follow the price of a market, sector or stock, and the price can only move in three ways – up (we buy), down (we don’t buy or we sell) and sideways (we hold and wait). The probabilities vary depending on market conditions, but we simply need to wait patiently for Price to tell us which direction to go in and invest accordingly.
4. Turn It Off
Admittedly, we have been saying this for a while – but if you are concerned solely about the markets and your portfolios, turn off the noise.
Turn off the cable and network news, because they are often biased and realize that negative news sells. Newsfeeds and social media also add no value to your investment decisions. Ignore the economists (which, by the way, all have differing opinions), the analysts, their consensus, and company investment reports because they are often subjective and/or incomplete. Save yourself the frustration and the worry, and spend the time doing things you love instead.
Government Shutdown?
Much has been made of the recent government shutdown in the US, but financial markets have largely shrugged it off. JC Parets, Technical Analyst and Founder of TrendLabs, wrote:
“Historically, these government shutdowns are fantastic... for journalists. They get fresh headlines to write, new panels to debate, and endless excuses to fill airtime. They're also a gift to storytellers who need a gloomy hook. "Markets can't possibly rally with a shutdown looming," they insist, as if Washington gridlock hasn't been a permanent feature for decades.
But here's the reality: The market doesn't care.
Moves heading in are usually muted, and while the government is "shut down," there's no consistent bearish effect at all. These episodes typically last a few days or weeks and then fade into the background - just another round of noise. Journalists love it. Politicians milk it. But investors don't have to waste their time reading glorified gossip columns about it.”
Down, down and away?
We are, however, much more interested in the direction that interest rates will take, both in the US and in Canada.
As aforementioned, the Federal Reserve finally opted to decrease rates by 25bps last month. Benjamin Reitzes, BMO’s Managing Director of Canadian Rates and Macro Strategist wrote earlier this week:
“Equity markets have been amazingly resilient since the Liberation Day turbulence despite persistently heightened uncertainty. The worst fears about the impact of tariffs on the global economy haven’t really come to fruition, though some have fared better than others… One common thread is that inflation slowed enough to allow the Bank of Canada, ECB, BoE, and Fed (among others) to cut rates. While there’s a clear rationale in Canada, Europe and the U.K. (to a lesser extent) for rate cuts, it’s a less clear-cut picture in the U.S.”
Whether the rate cuts continue or not in the US will be the bigger question. Reitzes continues on to write:
“This week’s third reading for Q2 U.S. real GDP saw a 0.5 ppt upgrade to 3.8%, with consumer spending driving the improvement. That puts GDP growth at +2.1% y/y, powered by strength in domestic demand. While momentum has slowed over the past year, most other countries would be more than happy with that pace of economic growth. Despite resilient GDP growth, the labour market is showing signs of strain, with sharply slowing payroll growth highlighted by the mammoth downward revisions of a few weeks ago. And, inflation has shown some signs of cooling despite the core PCE deflator still hovering close to 3%. Brewing downside employment risks and somewhat slower inflation make a decent case for the Fed to cut rates closer to neutral. Unfortunately, the inflation outlook remains fraught with risks…to both sides (with a skew to the upside).
A seemingly healthy economy (that could prove not to be the case in the coming months), still-above target inflation, record-high equity markets and credit spreads at multi-decade tights don’t scream the need for lower rates and more liquidity. Indeed, the strength in U.S. consumption is being driven by the wealthiest households who are no doubt benefitting from rising wealth. A further series of rate cuts risks broadening that positive momentum. Risk assets would likely welcome firmer growth, driving prices ever higher and credit spreads ever tighter. While that might look like an attractive outcome, it would come at a time when inflation remains meaningfully above target. Running the economy hot would plant the seeds of a renewed inflation spike at a time when consumers and markets are only just moving on from the 2021-23 inflation spike.”
The key takeaway here is the unfortunate answer of “it depends”. It seems the US markets are anticipating further rate cuts, but a lot of the decision making over the next few months will depend on economic data and inflation.
The Bank of Canada followed suit last month with its own 25bps decrease, and seems to be echoing the same sentiments as our neighbours down south. Benjamin Reitzes had the following commentary on Canada:
“As they (the BoC) noted in the policy statement, the weakening labour market, some improvement in inflation and dropping of some counter-tariffs tilted the balance of risks for inflation toward a cut (last month).
One notable point is the BoC highlighting that the shift in U.S. trade policy and resulting drag on investment and jobs "reflects an economy adapting to a large structural change—many sectors are adjusting to the new global trading environment. Monetary policy is not well suited to structural shocks." The last part suggests that the BoC isn't necessarily itching to cut aggressively here and that there are limits to how much monetary policy can offset trade troubles.
The Bank remains focused on a "shorter horizon than usual" and will keep taking a "risk management approach". The potential for a follow-up cut in October hinges on the jobs and CPI reports released over the next few weeks.”
While we believe that decreasing interest costs will benefit stocks (especially small to mid cap companies) both in Canada and in the US, it looks as though we are in more of a “wait-and-see” situation.
Bottom Line:
We remain largely invested and in the Green Zone heading into the strongest months of the year. Based on the momentum, this market keeps telling us it wants to go higher, no matter what the news cycles say. We are, as always, watching our charts closely for signs of topping and/or rolling over, and will be ready to move in either direction. For now, however, markets remain resilient, and we will be looking to put any remaining (and new) cash to work over the next few days and weeks.
As always, should you have any questions regarding your portfolios or planning, or if you would like to meet in person or by phone or video conference, we are pleased and ready to do so.
Regards,
John, Victor and Megan