August is almost over, and everything after for the next few months is likely to give investors some reason for caution. As we noted headed into August, seasonality at the end of summer has historically been weak, but September has been even worse. Over the past 100 years, September has by far been the worst month of the year with an average decline of 1.24% as it is also the only month in which the index has fallen the majority of the time. Similarly, over just the past 50 years the Dow has averaged a decline of over 1% with positive returns barely more than a third of the time. Zeroing in more recently to the past 20 years, September is again weak, but other months like January, May, June, and August have seen worse average returns. Monday is the Labor Day holiday and we will give our team a rest before the September's sprint. Have a great weekend and summer's end.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) BWX Technologies (BWXT-US) The engineering services company received a contract from the National Nuclear Security Administration to complete a year-long engineering study for the deployment of a centrifuge pilot plant for domestic uranium enrichment. The contract has been awarded to BWXT subsidiary Nuclear Fuel Services. The contract represents the next phase of the U.S. agency's Domestic Uranium Enrichment Centrifuge Experiment. The program was developed and is managed by Oak Ridge National Laboratory. It is intended to advance uranium-enrichment technology for U.S. national security needs. Owned in Opportunity Portfolio.

(-) Nvidia (NVDA-US) reported another quarterly beat after market close yesterday. FQ2 beat estimates on both the top and bottom line. While we believe this alleviates concerns of a potential near-term revenue air pocket or Blackwell delays, the product-launch driven margin pressure appears a little more persistent in 2H. Encouragingly, management indicated that Hopper demand remains strong and the anticipation for next-gen Blackwell is “incredible”. The board also approved an additional $50b of share repurchase. We continue to see NVDA as the cleanest story in AI hardware. The greatest foreseeable risk to this Gen AI-driven growth thesis continues to be any lumpiness inherent to capital spending patterns at the large cloud service providers, which could trigger concerns on the sustainability of the datacenter revenue trajectory should NVDA’s customers fail to monetize their ongoing investments. Despite the stock’s significant outperformance, it is trading at a discount to its historical average (37.5x vs. 40x) given the rapidly rising estimates. We would continue to own the stock and recommend it to long-term growth-oriented investors. Owned in all portfolios.

(sold) PDD Holdings (PDD-US) The Temu parent tumbled on disappointing second-quarter results. The China-based online retailer said intensifying competitive pressures and macroeconomic headwinds in China have weighed on the performance. While PDD exceeded EPS expectations, the company missed on the top-line for the first time since 4Q22 as revenue growth slowed to 86% from 131% last quarter. What's hitting the stock especially hard, though, is the gloomy commentary from PDD's executives. Exited from Opportunity Portfolio.

(+) Royal Bank (RY-T) Shares hit new all-time highs this week after Canada’s largest bank reported higher profits and beat analysts’ expectation in its fiscal third quarter, the first full quarter since it completed the purchase of HSBC Holdings PLC’s Canadian business. The Toronto-based bank reported adjusted net income of $4.7 billion for the three-month period that ended on July 31, up 18% from the same period last year. Adjusted earnings per share were $3.26, up 15% year over year, beating consensus expectations of $2.95. Despite a strong performance that saw earnings grow in all but one of the bank’s business segments, chief executive Dave McKay expressed caution on a conference call with analysts, noting that there’s still some uncertainty in the economy as consumers wait to benefit from interest rate cuts and the unemployment rate rises. “We haven’t landed this plane on the economy yet,” McKay said. “It’s a little uncertain out there. We are operating with confidence in an uncertain environment and we’re moving forward.” Owned in Core, ESG+, and Cash Flow Portfolios.

(+) RTX Corp (RTX-US) Over the past week, RTX Corporation has been in the news for securing significant defense contracts with multiple countries for the sale of air-to-air missiles, highlighting the company's strong position in the defense sector. The U.S. approved the sale of AMRAAM-ER missiles to Norway and AIM-120 AMRAAM missiles to Romania (08/22/24), alongside a deal for Canada to purchase AIM-9X Sidewinder missiles (08/18/24). These approvals underscore RTX Corporation's global reach and the trust governments place in its defense products. Owned in Core, Cash Flow, US and Opportunity Portfolios.

(--) Super Micro Computer (SMCI-US) Shares shed a quarter of their value this week after the artificial intelligence server company said it would postpone filing its annual 10-K form for the fiscal year that ended June 30. Super Micro Computer said its management requires more time to “complete its assessment of the design and operating effectiveness of its internal controls over financial reporting.” Hindenburg Research revealed a short position in the stock Tuesday. Owned in Opportunity Portfolio.

 

Weekend Reading

RGC MacroMemo - August 27 - September 9, 2024 Business cycle / Fed easing nears / U.S. election / U.S OK / Overheating? / Geopolitics / Canadian corner: rails, economy, youth unemployment, immigration, mortgage renewals. RBC

Your Memories Are Like Paintings Understanding that memories are interpretations can transform you. Our brains never see the past clearly. They are like painters who are never satisfied. They constantly retouch the past with the colors of the present, putting a fresh version of ourselves on display for us to ponder. NAUTILUS

We'll Never Have It As Good As Our Parents Did Says Every Generation Ever. Every generation will complain that the youth are getting soft, while the young people will complain that the previous generation had it easy. Same as it ever was. MICHAEL BATNICK

So you're being replaced The pitfalls of the Liberals' Punjabi caste system have hit the mainstream, with changes supposedly coming. But we've been here before. It's action, not announcements, that will matter. ACCEPTABLE VIEWS