Market Ethos - Searching for the bottom: it's all about inflation

Ok, we are not fans of seasonal trends in the market for one simple reason: it is never that simple! Nonetheless, September, which has a history of lower returns and higher volatility, is certainly giving the seasonal supporters strong evidence this year. The S&P 500 has been as high as 4,119 and as low as 3,688 – let’s call it a 10% variance. And the month is not over. The TSX and many other markets are showing similar patterns. Last year was a great year for investors and 2022 is turning into the exact opposite, with both equity and bonds losing substantial value.

The root causes are well known and widely discussed. Rising inflation and central bank responses were the original driver of lower asset prices for equities, bonds and even real estate. This is now being complemented by recession fears and the implications for earnings, which in many cases remain optimistically high. You have to look hard to find a feel-good narrative. We read a lot of macro-outlooks from internal sources and many from research shops in North America and beyond, and the vast majority have a rather pessimistic view of what lies ahead.

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