CIBC EQUITY RESEARCH
August 31, 2023 Industry Update
Risk And Opportunity – How You Think Is Everything
CDN Matrix Portfolio – September 2023
Our Conclusion
September doesn’t have a good reputation and has proven to be the worst
month of the year, particularly from a hit-rate perspective. Over the past 10
and 30 years, September has produced an average loss of -0.70% and -
1.10% for the TSX and SPX, respectively, with only 45%-50% frequency of
positive observations. Hence, our natural inhibitions for wanting to make any
bold calls for the month of September – history may not repeat itself, but it
tends to rhyme. It also merits noting the last two weeks of the month tend to
be weakest. Our work shows that in the past 30 years, Consumer
Discretionary, Industrials, Technology, and Materials have printed negative
returns at a rate of 55%. Comparatively, from a return and hit-ratio
perspective, the Energy sector has generally been the brighter spot in both
Canada and U.S. with average returns of +0.3% (+58%) and +0.7% (+58%)
respectively.
However, despite the weaker seasonal influences, it would be reasonable to
suggest that any major dip in September is likely to provide another buy
opportunity – see our recent note No Pain, No Gain. The silver lining is the
broader global indices are still supported by rising long-term averages and
positive monthly/quarterly momentum indicators, albeit with near- to medium-
term negative ebb and flow (mean-reversion retracement). We also remain
of the view that recent GICS sector rotations continue to show a better
preference for late-cycle groups (Energy, Industrials, and Materials, often
associated with inflationary cycles). This, in conjunction with the recent Dow
Theory confirmation signal, should continue to keep trend-following models
better engaged on the long side. From a style perspective, quality-oriented
ETFs continue to show relative-strength leadership, while value-oriented
ETFs show RS bottom-building characteristics.
Key Points
Overall, equity indices have historically struggled in the month of September
with most sectors lower in absolute terms. The latest prints of our breadth
indicators have turned negative and are retreating, consistent with what is
typical for September. We note over 30% of the S&P 500 and S&P 400, and
TSX indices constituents, are down by over 10% peak to trough – market in
correction phase. Comparatively, over 60% of the Russell 2000 small-cap
constituents have declined by over 20% (bear-marking).
On the portfolio side, our August picks returned +0.05% and outperformed
the benchmark TSX by 167 bps. Comparatively, TSX returned -1.62% and
SPX returned -1.77%. Our TSM process has selected the following for the
month of September: Arc Resources (ARX), Cenovus (CVE), Whitecap
(WCP), Parkland (PKI), CAE Inc (CAE), WSP Global (WSP carryover),
Maple Leaf Foods (MFI), Chartwell (CSH-U carryover), Kinross (K), and
Killam Prop (KMP-U)