Investment Outlook for the Remainder of 2019   

Investors can expect short term pain during the next three months followed by long term gains to the end of the year.  

North American equity markets have a history of greater volatility and lower than average returns between late May to mid-October. Current fundamental and technical trends suggest that history is about to repeat.

On the charts, broadly based equity indices including the TSX Composite Index, S&P 500 Index, NASDAQ Composite Index and Dow Jones Industrial Average moved below their 20 and 50 day moving averages in the second week in May. A period of technical repair this summer is needed before indices complete base building patterns and once again are able to move higher.  

Earnings prospects support a cautious technical picture into summer. Consensus for S&P 500 earnings calls for a drop of 1.3% on a year-over-year basis in the second quarter and a gain of only 0.8% in the third quarter. Their muted trends follow no change in first quarter earnings.  

Thereafter, the outlook for U.S. and Canadian equities improves. Fourth quarter earnings for S&P 500 companies are expected to increase 7.5% on a year-over-year basis. Canadian companies serving the U.S. market are expected to catch the improving economic wave in the U.S. The stage is set for a typical year end rally beginning in October in U.S. and Canadian equity markets. 

Preferred investment strategy is to hold cash equivalents, bonds and low beta equity securities between now and October with the intention of preparing to move into Exchange Traded Funds that track broadly based North American equity indices in October.

Don Vialoux is the Editor of Timing the Market

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