The Monthly - September 2023 - MacNicolAsset.com

MacNicol’s Monthly Commentary – September 2023

With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snapshots of metrics, a section on behavioural investing and finally an update on MacNicol & Associates Asset Management (MAAM). We hope you enjoy this information, and it allows you to better understand what we see going on in the marketplace.

“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.”
– Malcolm X

September Affect…1

Septembers have traditionally received failing grades when it comes to their performance in the stock market. June and October are slackers too, but their failings somehow tend to be issued a passing grade by most investors. With school back in session, I decided to investigate September for you more academically, so I reviewed some quantitative analysis I received from a group at TD Bank. Over the past 50 years the S&P/TSX Composite index has returned on average negative 1.46% during September and that is a poor monthly return to average. Rather than assume that this September will result in a trip to the principal’s office for investors, I thought it might be more constructive to think about September opportunistically. Admittedly, this will be tough, many of us have gone through pricey summers, but the good news is that disinflationary pressures from the housing market, the labor market and the things-you-put-into-your-car-or-boat-or-fridge market are on their way. Disinflationary pressures are supporting stock prices even as companies issue a more diverse array of earnings results. The moderation in inflationary pressures is also allowing a renewed focus on savings and on the cause-and-effect relationship necessary to make saving successful over the long-term.

1 Affect is usually a verb, and it means to impact or change. Effect, on the other hand, is usually a noun that you would use to indicate the result of a change. Because “affect” and “effect” are homophones (words that sound alike), they are often confused.

Of course, there is no question that things continue to be expensive, and a few interest rate hikes will not solve all the challenges of inflation overnight. Most of the big-dollar inputs into Consumer Price Index (CPI) calculations such as housing, transportation and food and beverages remain at highly elevated levels, but they are beginning to either recede from extremes or stall their upward trajectory. Lower expectations for inflation going forward means central bankers can begin to feel as though they are holding inflation at bay.

[Tiff Macklem kept rates on hold last week and we feel there is a chance he does so again at the Bank of Canada’s next policy rate meeting.]

The tailwind of lower inflation expectations means that future rates hikes are likely off the table, and this could be good for stocks even if stronger earnings growth would be better for stocks. For now, suffice it to say that central banks appear to be engineering a soft landing with some degree of success depending on the venue. We believe Tiff Macklem has an easier job ahead of himself than his American counterpart Jerome Powell. Both men have tightened rates forcefully with the bulk of Macklem’s twists going into variable rate mortgages, their knock-on impacts in the rental market and then broader Canadian economy. Powell’s tautening has created an as yet unresolved regional banking crisis impacting mainly rich venture capitalists and not ordinary Americans.