With the Dow Jones Industrial Average finishing the first quarter in the red, National Bank Financial is sticking with its recommendation of underweighting North American stocks.

In a new report, NBF notes the Dow Jones index ended the first quarter down 2.6%. “Using the past as a guide, this turn of events is normally not a good omen for the balance of the year,” it says. “When this happens (23 times since the Second World War) the Dow finished the year in negative territory 65.2% of the time (15 out of 23 times).”

It says the probability of a down year increases to 85.7% when this first quarter weakness is accompanied by monetary tightening. The only two exceptions were 1967 and 1994.

“Since we expect to be strapped in the Fed’s dentist chair for the balance of the year, we continue to perceive 2005 as a challenging year, particularly in a context of U.S. earnings deceleration,” it concludes. “For the time being, we are sticking with our underweight recommendation on North American equities.”