Will a September Selloff Lead to a December Rally?

September 11 to September 15, 2023


Will a September Selloff Lead to a December Rally?

September 11 to September 15, 2023


Market Recap

  • It was a challenging week for global stocks, though the major indices in North America and Europe appeared to get some footing on Friday. Continued strength in oil prices has been one driver of the recent weakness, as it has fanned inflation concerns at a time when many major central banks hoped to be at or near the end of their rate-hiking campaigns. Notably, oil prices vaulted to their highest levels of the year, rising above the $87 mark following coordinated moves, announced on Tuesday, that will see Saudi Arabia and Russia extend current voluntary production cuts (1mb/d and 300kb/d, respectively) through year-end.
  • The S&P/TSX ended the week 2.3% below last Friday’s close, marking its fifth down week of the last six. On a sectoral basis, materials, telecom and technology led to the downside, while health care, energy and consumer stables saw more moderate losses.
  • The S&P 500 was a little higher up the equity market leaderboard, falling 1.3% this week. While the losses were fairly broad-based (outside of energy and utilities), technology was a notable underperformer, weighed by the Chinese government’s new restrictions on foreign-branded electronic devices (i.e., iPhones).

Interest Rates

Last week, the Bank of Canada (BoC) held firm, declining to raise or lower interest rates. The decision itself wasn’t surprising—we’ve seen some signs of a cooling economy, like softening GDP data and declining job numbers (though the last report was good), so there was never much of a doubt that they would raise rates. What was surprising is that we didn’t hear a more dovish statement from the BoC. Rather, its tone was hawkish, emphasizing that inflation remains sticky and that further rate hikes are not off the table. Softening economic numbers and declines in the housing market indicate that interest rate increases are doing their job. With that we would expect a more dovish or at least more balanced statement from the BoC about future rate hikes. So, to hear a more hawkish statement of potential rate hikes was a bit puzzling. In the United States, the economic numbers are much better, and consumers are less indebted, so we don’t think it is a clear to stop there. We could still see more rate hikes ahead. We do, however, expect a pause at the next U.S. Federal Reserve (Fed) meeting, but there’s a real possibility they could raise rates at least one more time down the road.

Bottom Line: In Canada, interest rate hikes may be over, while in the U.S., a brief pause may be followed by at least one more increase.


The fall is typically a time of comparative weakness for markets, and we’ve seen some evidence of that seasonal impact already. A pullback in early August was followed by a slight rebound in the latter half of the month, driven largely by stronger earnings that lifted up both the broader Technology sector and markets overall. Now, since the start of September, we’ve started seeing selling pressure once again. Our expectation is that we’ll see a near-term dip across the board, and that it’s likely to be more significant than what we saw in August given there likely will not be any earnings boost. Recession risks have been pushed out into 2024 and the probability of one continues to decline, which could set up for a Q4 rebound if a pullback occurs in Q3. The holiday season may be consumers’ last big chance to spend before tightening their belts in the new year.

Bottom Line: Markets could be choppier in September than they were in August, but this may set the stage for a late-year rally.


Like many analysts, we believe that the chances of a recession have declined—but unlike others, we haven’t shifted to a “no recession” outlook. It’s possible that Canada is already in a technical recession, and if not, our expectation remains that we’ll see one at some point in the next year. The same is true for the U.S., though they are in a slightly better position than Canada. As we’ve always said, however, any potential downturn is likely to be mild—either people will barely realize they’re in a recession, or it will be short-lived because central bank step in and help to stimulate the economy by cutting interest rates. Our internal model shows a 35% chance of a technical recession, a 35% chance of a soft landing, a 10% chance of a hard landing, and a 20% chance of no landing over the next 12 months.

Bottom Line: A mild recession is still likely, but the probability of a soft landing or no recession at all have increased.


Given our outlook remains roughly the same, we haven’t made many recent positioning changes in our portfolios. Our asset mix of bonds, equities, and cash remains fairly neutral across the board. Geographically, we remain neutral on the U.S. and Canada, underweight International (EAFE), and overweight Emerging Markets (EM). U.S. markets have had a good run but could retreat in the near term, while Canada could benefit from the recent Energy cycle, which we expect to continue. EAFE, meanwhile, is likely to be impacted by higher oil prices, still-high inflation and more rate hikes (on top of other negative factors, like the Russia-Ukraine war). And in EM, we believe that the pessimism on China has gone too far and that more attention should be paid to other emerging markets, including India. Finally, in Fixed Income, we’re now a little less pessimistic on High Yield, which is a function of the recession risk being reduced and continually being pushed further out.


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