It may seem like doom and gloom on the TSX today, but there is definitely light at the end of this dark tunnel. Light that we’ve already started to see. Analysts remain divided about when and even if Canada will enter a recession this year. And honestly, this alone is a good thing.
If economists are divided, it means if there is a recession it’s going to be quite mild. No 40% drop in the markets, perhaps, as we saw back during the Great Recession.
But what is in store for 2023? And getting more specific, what about in May of this year? Let’s look at what economists are predicting for this month.
First, what hasn’t happened
Economists are pretty bullish about the next 12 months, and they have been even since last summer. Back then, portfolio managers expected the TSX to finish the year out at higher levels than the summer, hitting record highs in 2023. Most expect the TSX to surpass $22,000 by the end of 2023, and hit new record highs, which currently sit at $22,213.
Right now, the TSX is down 8% from those heights. It, therefore, has a potential upside of 8.6% as of writing. And if you look back over the last few decades, you’ll see that the TSX today trends upwards. So those heights will be hit again. The question of course becomes, when?
Influence at home and abroad
Not only Canada needs to improve, but internationally as well. There has already been improvements at home, with inflation falling from 2022 heights at 8.1%. It’s now almost half that at 4.3% as of April 2023. This has been in a steady downward trend, one that should continue into May.
That’s especially considering Canada continues to see the job market increase. The unemployment rate stayed steady at 5%, and jobs mean an economy that’s at least stable for now. But again, it’s not just Canada that needs to improve.
One barrier that could come down is the lessening of restrictions in China. China abandoned the zero-COVID policy in December, and since then there’s been an increase in the oil price. We could see a boost in commodity prices, materials, and resource stocks in the near term in this case.
What investors should do
As mentioned, economists still believe there could be a mild recession. This would be in the summer at some point, and we’re certainly edging towards this. That being said, investing in defensive stocks in the materials, resource, and commodity sectors would be a great choice in May 2023. In the second half of 2023, investors could then turn to more offensive plays.
Right now, a solid option I would include is Nutrien (TSX:NTR). Nutrien stock is through its volatility phase, and remains a strong growth story for investors. The stock is down 36% in the last year, providing investors with a huge deal and a 3.12% dividend yield as of writing. It trades at only 4.8 times earnings, despite continuing to see strong results.
Nutrien stock remains the world’s largest producer of crop nutrients, yet shares fell recently with a tender offer by an investment group at a 5% discount in share price. Shares fell in response, and are likely to rebound in the next few months.
Bottom line
Get on the defensive in May 2023 by purchasing commodity, resource, and materials stocks if you want protection in the first half of 2023. But right now, I would also start creating your watchlist for when the market starts to recover. As of writing, the TSX today may be down 8% from May 2022 highs, but is up 6% from March 2023 levels.
