CIBC EQUITY RESEARCH
November 30, 2023 Industry Update
Sentiment Surveys Are Too Hot - AAII
CDN Matrix Portfolio – December 2023
Our Conclusion
This is our last CDN portfolio publication for the year 2023, and we would like
to thank you all for your ongoing support, feedback, and allowing us to be
part of your investment process. We look forward to continuing our
partnership together in the new year, with our rigorous attempt at keeping
you more frequently on the right side of the trend.
Indices are entering their sweet spot of the year (the month of December,
aka the Santa Clause rally) with an already overbought condition and
elevated optimism that are often a recipe for potential negative mean-
reversion risk. The latest sentiment surveys measured by the American
Association of Individual Investors have reached extremes in the Bull-Bear
spread, which is a popular interpretation for a contrarian signal -- too many
bulls versus too few bears. It also merits highlighting that while December is
historically one of the strongest months of the year, the rate of return and the
hit rate in the month of December tend to decline when preceded by a strong
month of November – SPX returned +8.92% and TSX returned +7.22% this
past November. A review of our time-series and monthly return tables shows
that December is likely to be a muted month compared to November, if not
negative – chasing performance and momentum may not be the right
strategy in December, unless barbelled accordingly.
Key Points
December, based on all-years data, brings about positive seasonal
influences for both SPX and TSX, with an average return of +1.3% (73%)
and +1.5% (80%) respectively. Comparatively, while NDX historically
outperforms throughout the last two weeks of the month, its positive
seasonal hit rate is at a low 50%. Since the October lows, over 70% of SPX,
and 60% of the TSX constituents have reclaimed their 50-d averages, with
the number of advancers outperforming decliners by 3:1 in November. While
this is a good sign from a breadth-expansion perspective, the momentum
factor for the summation index, which measures breadth, is already reaching
peak-like readings. We also note that the monthly and quarterly trend for
breadth studies are in downward trajectory since the peak in February and
the lower-high peak in August – in our opinion breadth expansion has
limitations and is likely to be truncated again going into 2024. This, in
conjunction with the latest overheated sentiment surveys, does not bode too
well for equity indices’ forward returns.
Our November basket returned +6.4% with a 90% hit rate (RBA was the only
outlier). Year to date, our recommended baskets have returned +13.17%
and outperformed the TSX index by 878 bps. Comparatively, year to date the
TSX has returned +4.39%. The following list represents our selection for the
month of December: Parkland (PKI -carryover), Prairiesky Royalty (PSK),
Brookfield Corp (BN), Element Fleet (EFN), SNC-Lavalin (ATRL), Thomson
Reuters (TRI), Agnico Eagle (AEM), Barrick Gold (ABX), Chartwell (CSH.U),
and Choice Properties (CHP.U).