Market Outlook

The market has been going through a bullish cycle thus far. Seeking Alpha reports that we should see a flat market for the rest of the year as company fundamentals catch up to the gains of last year. Forbes warns, however, that there could be a market sell-off soon caused by rising interest rates, growing inflation and trade war tensions.

Cameron Hurst on Market Outlook

Mid-summer is silly season, with the signal being drowned out in a lot of noise. In Europe, people pay close attention to who is speaking because so often in the summer, the speaker is the assistant to the assistant and their statements are not credible. There are lots of things to worry about but the earnings revisions tell a different story. They started the year with a big rise, stayed flat for months and are rising again as good economic numbers have been published. Despite growth in the economy, inflation is still benign. So the fundamentals give a lot of reason to be optimistic. Over the short-term, the 25% growth in earnings estimates and 10% revenue growth this year give a lot of reason to relax. These numbers are, to a large degree, the result of the tax reduction and so this level of growth will not continue every year. However, the businesses will continue to operate at this new level and so they are worth more. Over the medium and longer term, however, there are some indications of a recession to come. Canada relies on cyclical industries. Signals from asset management, transports and semiconductors are turning or flattening out. The strength of the market has been shifting, with more contribution from utilities and health care–health care strength usually shows up late in the cycle. And the 2 year to 5 year Treasury yield curve spread is very low–only 19 basis points. So, it is a wonderful party, but it won’t last all night.

We cannot expect a bull market to last forever, but numbers and earning look good so it’s expected that companies will operate on this higher level. On long-terms one should be careful regarding indicators that point to a recession.