TopPicks from Christine Poole, chief executive officer and managing director, GlobeInvest Capital Management
FOCUS: North American large-cap stocks Restrictive monetary policy is slowing economic growth. Due to the lagged effect of monetary policy, the impact of higher interest rates and borrowing costs will be more fully felt in 2023. Tighter financial conditions for households and businesses will dampen consumption and investment as well as increase the cost burden of existing debt.
Given the significance of the consumer sector in many developed economies, the overall features of the consumer debt profile are relevant in assessing the impact of higher interest rates. According to a study by Wells Fargo, Canada stands out as having one of the highest ratios of household debt to disposable income, at 184 per cent, and interest expense to disposable income, at 7.2 per cent.
A positive longer trend for the Canadian economy is the robust immigration targets set by the government to approve 500,000 new immigrants per year through 2025. The influx of new residents is equivalent to 3.8 per cent of Canada’s population. Equity markets are forward-looking, constantly trying to anticipate events that are in the future. How they attempt to anticipate recessions is no different. Historically, for both the TSX Index and S&P 500 Index, when a negative gross domestic product year occurs, stocks are usually down the prior year and up in the year the recession actually occurs. With both Canadian and U.S.
Accurate macroeconomic forecasting is nebulous at best. Investors should maintain cash reserves to sufficiently fund near-term liquidity needs with longer-dated funds invested in a diversified portfolio consisting of companies with strong fundamentals that can withstand the economic cycle.
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