What comes next?

   By Guest Blogger Ryan Lewenza

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It was a very solid first half of the year for the equity markets with the S&P 500 and TSX up roughly 9%. Small caps, tech stocks, emerging markets and Canadian dividend stocks are up even stronger. So, what can we expect over the summer months and in the back half of the year?

We remain constructive on equity markets for now. The U.S. and global economies have demonstrated remarkable resilience despite ongoing geopolitical uncertainties. At the same time, the Federal Reserve has maintained a steady interest-rate policy, while corporate earnings continue to exceed expectations. In fact, S&P 500 earnings grew 26% year-over-year in the first quarter, highlighting the strength of the corporate sector and providing a supportive backdrop for equities.

S&P 500 earnings are hitting all-time highs

Source: Factset, Turner Investments

However, given the strong rally we’ve seen in equity markets and the tendency for stocks to experience a softer seasonal period during the summer months, we would not be surprised to see some increased volatility over the summer and into the fall.

Why?

First, there is the issue of seasonality. Historically, the period from May through October has been considerably weaker for equity returns than the November through April period. Since 1950, the S&P 500 has generated an average return of roughly 2% from May to October, compared with 7.5% from November to April. In other words, about 70% to 80% of the market’s long-term gains have been earned during the November-to-April period. While seasonality does not drive long-term market performance, it does suggest that investors should be prepared for a volatile environment over the coming months.

Average S&P 500 performance in the May-Oct and Nov-Apr periods

Source: Factset, Turner Investments

Second, political uncertainty could also contribute to market volatility. The U.S. midterm elections are approaching on November 3, and history suggests that equity markets often experience some weakness in the months leading up to a midterm vote.

In my analysis of S&P 500 performance during midterm election years, I found that the market has historically struggled during the middle part of the year. On average, the S&P 500 declines approximately 2.5% in the second quarter and a further 1% in the third quarter of midterm election years. Investor uncertainty surrounding policy direction, fiscal priorities, and election outcomes can weigh on sentiment during this period.

However, the good news is that this weakness has often created attractive buying opportunities. Historically, the market has tended to rebound strongly once the election uncertainty begins to clear. In fact, the S&P 500 has delivered an average gain of roughly 7% in the fourth quarter of midterm election years.

Putting this all together, while we remain constructive on equities, we recognize that the combination of a strong rally year-to-date, the seasonally weaker summer period, and the approaching U.S. midterm elections could lead to increased volatility over the coming months.

With that in mind, we have increased cash levels within client portfolios. This provides us with the flexibility to take advantage of any market weakness should it occur, allowing us to potentially pick up some bargains ahead of what has historically been a stronger fourth-quarter period for equities.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/07/11/what-comes-next-4/