Seasonal trends in financial markets in September
September isn't the greatest month for seasonal trends. When you think about it, that makes a lot of sense. July and August are holiday months and that keeps central bankers and government officials largely on the sidelines. When they get back to work in September, things start to happen.
It's the same with asset managers. The summer doldrums are slowly becoming an anachronism but September is the time when every starts to think about year-end and repositioning into new themes.
August is the opposite, with markets often on auto-pilot. That makes it a great month for seasonal trends and our seasonal ideas in the past month did very well.
Looking ahead, the Fed, ECB, BOC and tariffs will all be major headlines risks that threaten to swamp any seasonal tailwinds, so be nimble. That said, here are a few ideas:
1) Late-year oil weakness
I wrote about this one last year and oil absolutely crumbled. September itself is neutral over the past decade but there is growing evidence of weakness in the final three months of the year. I believe hurricanes are a big part of the story. They used to drive prices up but now the US is producing so much more oil that there's an equal risk of refinery shutdowns boosting inventories. September may not quite be the time to sell oil outright but take advantage of any rallies to sell.
On the flip-side, September is by far the best month for natural gas and it has been badly beaten down this year.
2. Some pain for stocks and Canada?
September is a tough time in global stock markets. Since 1990, it's one of only four months where the S&P 500 averages a decline.
One index that's particularly soft in September is Canada. The TSX Composite Index averages a 1.28% decline over the past 28 years and it's by-far the worst month over 10, 20 or 30 year periods. Along those lines and with weak oil seasonals, it's no surprise that the Canadian dollar trends to struggle in the final few months of the year. It's outperformed commodity currencies this year and a bit of giveback may be in order.
On the other side of the stock market trade, the Sept-Dec period is a very strong time for the Nikkei 225.
3. USD/CHF strength
September is the second-strongest month for USD/CHF. This one gives me some pause because the Swiss franc hasn't been as strong as I would have expected over the past few months. Specs are also short, which is hard to believe in this environment. I worry that the Swiss National Bank is going to intervene in September after the ECB meeting.
4. It's the second-weakest month for gold over the past decade
Gold has had an amazing run over the past two months but maybe it's time for some consolidation? I like the long-term trend and story and would use a pullback to buy.
