This is the time when I normally offer my predictions for the coming year.
But here’s the problem. Forecasts are problematic at the best of times, but
at least they have some basis in reality by analyzing trend lines and
making reasonable assumptions about where they are heading.
Unfortunately, right now, the only predictable patterns are volatility and
uncertainty. Every forecast I have read about the markets in 2019 is based
on a number of assumptions that may, or may not, come to pass. If they
don’t, the whole scenario collapses.
That’s why some economists are forecasting a rebound in the markets for the
year ahead while others are saying stocks will be lower a year from now
than they are today. It all depends on which assumptions you rely on.
Recently, a reader chastised me for focusing too much on political
developments and urged me to stick to the markets. I wish that were
possible, but the two are intricately intertwined. One man, President
Donald Trump, can dramatically shift market direction with a single tweet.
It’s impossible, and foolhardy, to ignore that reality.
Given the uncertainty we face, I am going to confine myself to only two
predictions for 2019.
1. The TSX will outperform the S&P
The Toronto Stock Exchange had a terrible year in 2018, losing 11.6%. I
don’t expect 2019 will be as bad. We may see some recovery in the energy
sector after a miserable 2018, which saw the S&P/TSX Capped Energy
Index fall by almost 29%. Even a breakeven year would be a plus by
comparison. We may also see a better performance from the largest TSX
sector, financials, which lost 12.5% last year.
Meantime, U.S. stocks will not be getting the huge boost that was provided
by President Trump’s corporate tax cuts, which came into force at the start
of last year. These inflated net earnings across the board, which in turn
deceived investors into believing corporate profits were actually better
than they were. This year we’ll see a return to reality as the one-time
impact of the cuts vanishes.
This is not to say that the TSX will end the year in the black. If we do,
it will likely only be a single-digit gain. But we should do better than
the S&P 500. That’s something I have rarely suggested in recent years.
2. Bonds will do better
I expect the bond market to fare a little better this year as the pace of
interest rate increases slows in both Canada and the U.S. in the face of a
softening economy and global trade disputes. It may come as a surprise that
the FTSE Russell Canadian Universe Bond Index actually finished 2018 in the
black, up 1.41% on the year after a strong finish in December. That was 13
percentage points better than the TSX.
That’s about as far as I’m prepared to go at this point in forecasting
2019. Once we get answers to some of the key question marks overhanging
markets, I’ll have a better feel about where we’re going. In the meantime,
stay defensive with your portfolio.
is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investor
newsletters, which are available through the Building Wealth website.
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Notes and Disclaimer
© 2019 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.
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