September 17, 2023: Just a minor pull back

Markets continue to defy expectations as they move into the worst-performing month of the year. September has the notorious record of producing negative returns 50% of the time over the last 20 years and when viewed only in the last five years, that jumps to 80% of the time, September finishes off with a minus print.

But as the path of equity markets appears to be more neutral than negative, investors may have been treated to a late fall treat.

For example, the Dow Jones Global Index (DJW) broke out of a well-defined head and shoulders bottoming trading pattern in June 2023 and is gradually advancing higher (Chart 1). This action is despite multiple inverted yield curves, stubborn inflationary data, and rising interest rates.

The S&P 500 is in an equally positive stance (Chart 2). The US index also broke out of a bullish bottoming pattern in June rising 9.0% to 4,607 in under four months.

Canada's TSX has lagged behind the US indexes in performance this past year but now appears set to advance in Q4. Contained by weak oil prices and downtrodden financials, the TSX has been pinned under the 21,000 level since November 2022. Recent action in the energy market has a breakout in oil prices, driven by low inventory levels and slowly increasing demand.

Though still pinned under the 21,000 level, the TSX is making another run at that level this month. Models are now indicating a likely breakthrough with a retest of 22,200 in Q4 (Chart 3).

Bottom line: The highly anticipated seasonal weakness in September, does not appear to be present. Markets are developing a minor pullback after advancing over the summer months. Our targets for the DJW are 550, 4,650 for the S&P 500, and 22,200 for the TSX.