Global Equity Weekly

September 06, 2024 | 17:00

The September Effect?

Economist

Senior Economist and Vice President
Economics

Priscilla joined BMO Capital Markets in 2016 and plays a key role in analyzing Canadian household trends and the... (Read more)

Priscilla Thiagamoorthy

Senior Economist and Vice President
Economics

Priscilla joined BMO Capital Markets in 2016 and plays a key role in analyzing Canadian household trends and the... (Read more)

It has been well documented that September is traditionally the worst month of the year for equities. While we’re still in the early days, this September looks no different, with stocks seeing their biggest weekly selloff since March 2023. The S&P 500 ended 4.2% lower, the Nasdaq slumped 5.8%, while the Dow dropped 2.9% after August’s jobs report reignited fears that the economy is cooling faster than anticipated, leaving the Fed behind the curve.

Nonfarm payrolls rose by 142k in August, pulling the three-month average to the lowest since mid-2020, after downward revisions to the prior two months. Still, the jobless rate ticked lower to 4.2%, the first decline in five months as household employment bounced back. The middling report wasn’t enough to resolve the 25-bp vs. 50-bp debate, though Fed Governor Waller noted that he would be open to “front-loading rate cuts” if subsequent data pointed to a significant deterioration in the labour market. For now, we expect 25-bp rate cuts in each of the next three meetings this year, and a series of quarter-point cuts through 2025. While it’s clear the labour market is cooling, it isn’t freezing and Q2 real GDP was revised up to a solid 3.0% annualized gain, keeping the soft-landing scenario very much in play.

Source: Bloomberg

The TSX ended the week 2.4% lower. As widely expected, the BoC cut rates by 25 bps for the third straight meeting. Governor Macklem tilted a bit more dovish amid concerns about a slowing economy that could pull inflation below the Bank’s 2% target. On the employment front, Canada added 22,100 jobs in August, the first increase in three months. Still, the employment gains were due to a rise in part-time positions, as the number of full-time jobs fell by 43,600. The jobless rate climbed 0.2 ppts to 6.6% the highest since May 2017 (outside of the pandemic). Overall, the data suggest weaker labour market conditions as job growth fails to keep up with population growth. The weakness is likely to keep household spending muted and price pressures capped, suggesting the BoC can continue on its rate-cutting path well into 2025. While a 50-bp rate cut can’t be ruled out, we still see 25-bp cuts in October and December.

For equity investors, it has been quite a ride so far, as the Fed prepares to jump off the sidelines. While the last four Septembers have been exceptionally weak for the S&P 500, posting declines of 4.9% (2023), 9.3% (2022), 4.8% (2021), and 3.9% (2020), this September may be one to remember.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance