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Lee Rorabeck
Keeley Simpson, B.Comm
Oxana Stevens, BA (Econ)

Tel: 416-928-2815

2 St. Clair Ave. West
19th Floor
Toronto, ON
M4V 1L5

Market Update


2019 Market Outlook
There’s a Storm Coming at Some Point, but Clouds Are Dissipating for Now

Coming off of a year like 2017 when the S&P 500 Index was up 19%, many investors were expecting
stocks to at least give back some gains in 2018.

While rhetoric, tariffs, flash crashes, sharp price corrections, noisy recession prognostications, peak
earnings forecasts, flattening yield curves, and midterm elections were only some of the inputs
distracting investors, US stocks remain marginally positive so far in 2018. As such, the majority of clients
that we interact with, let alone the broader investing public are all asking the same question: When will
it end?

To be sure, forecasting the end of the bull market has been an almost monthly dynamic since March
2009, in our view. Yes, the S&P 500 has enjoyed an anniversary for the longest running bull market in
history in 2018. And yes, the February correction still represents the only official correction for the S&P
500 in nearly three years despite the bears’ best efforts in October. However, we continue to believe
the resounding emotion of investors is doubt relative to faith. For instance, while some select areas of
the market have certainly enjoyed froth and euphoria, equities are much more hated than loved, in our
view. Keep in mind, U.S. equities have experienced net outflows so far in 2018, while bonds actually
outperformed during long stretches over the past year while enjoying inflows.

Again, when will it end?

Our best guess is that fundamental conditions have to get a lot better and blow away the naysayers and
forecasts before most investors and consensus-alike are totally bought in. Judging by our client
interactions and the broader public, we are not even close to full buy in given the lack of believability
during the past nine years.

Granted, there are storms brewing. Volatility has clearly returned and the real rate of return for bonds
has been negative for several years. Furthermore, corporate earnings will have a hard time keeping up
with the momentum displayed in 2018, while the Fed has many investors envisioning a misstep in 2019
(specifically because earnings and select macro metrics are slowing). However, we believe the forecasts
are too focused on the absolute numbers and lack longer-term perspective. Remember, the
environment remains a very good recipe for stocks – high-single-digit earnings growth, STILL low
interest rates, 2.5-3% GDP and increased dividend growth.

As such, for the first time in a few years, we find ourselves more optimistic relative to the consensus yet
again and believe the S&P 500 will attain a year-end 2019 price target of 3,150.