Monday, September 20, 2021
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You may have heard the term “September slide”. While past performance is not an indicator of future performance, the term refers to the fact that, especially in the last ten years, the month of September has not been kind to financial markets. We started hearing more about this when the first week of September was met with declines in the S&P500, which continued into the second week. For the month so far (to September 17) the S&P500 index is down approximately 2.01%. There are still two weeks to go in September, and as Yogi Berra said “it ain’t over ‘till it’s over”. The details are also interesting to note. So far this month (as measured to September 17) the biggest gains have been coming from the energy and consumer discretionary, up 3.48% and 0.14% month-to-date. On the flip side, real estate 3.67% and utilities 4.63% have led the decline in percentage terms. However, because the technology sector represents such a significant weight in the index, the fact that is down 2.12% plays a major factor for the entire index.(1)
Market news continues to be dominated by the global response to the pandemic, especially in the US where some states are experiencing soaring case counts. But the pandemic isn’t only US focused. Closer to home, there is troubling news out of Alberta that they may be required to send patients to other provinces as the provincial health care system is becoming strained once again.
Rightly so, the early part of the week was dominated by commemorations of the 20th anniversary of the September 11 terror attacks. I was working in downtown Toronto that morning and clearly recall first learning about the attack from a colleague who was listening to a syndicated morning radio show. I’m sure you all recall exactly what you were doing that morning as well.
On the economic front, the New York Fed Empire Index, which tracks manufacturing in the region, came in way above estimate, which may be signaling an accelerated recovery in the US manufacturing sector. Key inflation data came out of the United States, showing that inflation has been increasing month-over-month for the last several months. This is something to keep a close eye on, potentially positioning portfolios to better handle an inflationary environment.
We promised to watch for the release of the US Michigan Sentiment Index which came on September 17. Consumer sentiment did not improve between August and September, which may have had a dampening effect on markets, which in general finished lower for the week.
It’s election day in Canada on September 20. There seems to be voter malaise in Canada as frustration mounts about Prime Minister Trudeau’s decision to launch an election as he hopes for a majority governments. Pollsters have been wrong before, but the pundits seem to suggest we may be headed once again to a minority government of some kind. It remains to be seen whether or not the “Kenney Effect” – Alberta’s current struggle dealing with the pandemic – will hurt conservative chances in deep blue Alberta.
Globally, we anticipate the September 26 German elections. Who will emerge as the country’s leader as Chancellor Merkel steps down as the head of her country? Can the centre-left Social Democratic Party can keep their lead in the polls, which would be a marked change from the many years of leadership under Merkel’s centre-right alliance? A shift in German politics will have an impact not only on Germany, but on Europe as well since it is a major driver of the EU economy.
In the United States, Governor Newsom survived a recall election in California, it will be interesting to see the ripple effects this will have. California is the largest economy in the United States. The recall seemed to galvanize voters and is seen by some as a proxy vote on continuing to aggressively promote a pro-vaccine / pro-lockdown agenda.
All eyes seem to be on inflation, as food and energy prices surge around the world. Natural gas prices in the US, for example, hit a seven-year high this week due to increased demand and some modest supply chain disruption caused by Hurricane Ida. Inflation in car-obsessed North America is impacted heavily by rising gasoline and electricity prices, but the inflation problem is global. In the UK, inflation recorded one if its biggest jumps since 1997 due to surging wholesale gas prices.
They say a rising tide lifts all boats. With increases in energy costs, it perhaps comes as no surprise that energy companies have rallied between September 1 and September 17, up over 3.48%. With more attention being paid to inflation, it is useful to examine sectors that seem to be benefiting from the inflationary trend. Of note, the energy sector has risen by 3.48% between September 1 and September 17. As measured August 31, 2011 the energy sector comprised 12.4% of the US economy. Ten years later, as at September 17, 2021 it had decline to representing only 2.5% of the US economy, but it should be noted it is something that our society cannot live without. Indeed, the growth of the entire information technology sector would not be possible without access to energy. If these results prove anything is that we cannot yet successfully decouple energy from the economy.
Thinking about energy… without judgement, I find it interesting that according to the Harvard Business Review quotes a Cambridge Center for Alternative Finance study that estimates that bitcoin currently consumes around 110 terawatt hours per year – over 0.5% of global electricity production. Or about the same amount as Sweden. Yes, an entire country. That being said, much of the energy comes from renewable and green sources but still… that’s a lot of power.
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
(1) Data provided by Factset, showing the price returns of all the major indices i.e. (S&P TSX, S&P500, NASDAQ composite) for the period between September 1, 2021 and September 17, 2021 in its respective local currency.