“I do see Canada falling right into a recession, and the US economic system following in 2024,” Schulze says. “However a key right here is that I don’t see a deep recession for Canada. I believe it’s going to be comparatively gentle and final lower than a yr.”
One of many key variables inside that outlook is what the Financial institution of Canada would possibly do. Inflation stays elevated—due partly to increased debt prices and oil costs—however Schulze believes the important thing indicator for the BoC would be the labour market. If the labour market loosens additional, we may even see a fee minimize someday subsequent yr. Nevertheless, if oil costs stay elevated, that might influence the potential for easing from the central financial institution.
Fairness alternatives in a recession
In a recessionary setting, Schulze sees a number of the finest alternative in dividend paying shares. He thinks these firms can profit from cyclicality and resilience within the Canadian economic system as his predicted recession involves its finish. Uncertainty is persisting in equities, however excessive dividend yields may also help defend the whole return image for purchasers. Furthermore, most of the largest dividend payers are inclined to have higher visibility into earnings, which ought to assist mitigate short-term volatility.
Canadian dividend payers are significantly enticing in Schulze’s eyes, as a result of their valuations are fairly low. The TSX 60 is presently buying and selling at multiples decrease than the S&P 500, however has this yr supplied dividend returns of round 4%—greater than double the dividend fee of the S&P 500. Schulze accepts the premise that Canadian dividends are presently on sale.
Past dividend payers, Schulze cautions towards FOMO from the returns we noticed in ‘the magnificent seven’ tech shares earlier this yr. Meta, Apple, Amazon, Alphabet, Microsoft, Nvidia, and Tesla have contributed a lot of the mixture development we’ve seen to this point in 2023, however their current pullback and the shifting consensus to a ‘increased for longer’ rate of interest setting has Schulze wanting elsewhere.