“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 feel 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 partially 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 might even see a fee lower someday subsequent yr. Nevertheless, if oil costs stay elevated, that might affect the opportunity of easing from the central financial institution.
Fairness alternatives in a recession
In a recessionary surroundings, Schulze sees a number of the greatest alternative in dividend paying shares. He thinks these corporations 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 might help defend the entire return image for shoppers. Furthermore, most of the largest dividend payers are likely to have higher visibility into earnings, which ought to assist mitigate short-term volatility.
Canadian dividend payers are notably enticing in Schulze’s eyes, as a result of their valuations are fairly low. The TSX 60 is at present 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 at present on sale.
Past dividend payers, Schulze cautions in opposition to 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 progress we’ve seen to date in 2023, however their current pullback and the shifting consensus to a ‘increased for longer’ rate of interest surroundings has Schulze wanting elsewhere.