The TSX today continues to be a confusing place. Honestly, it’s unclear what investors should do at this point. That is why I’m going to dig into it, as we edge towards summer. While there are some earnings reports posting positive results, there are other areas showing that a slowdown is potentially right on top of us.
With that in mind, let’s look at what investors may expect heading into summer.
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Looking at the obvious: Interest rates and inflation
First off, let’s look at what’s been happening with interest rates and inflation. These have been the heaviest weight on economies around the world. And here, there has been both good and bad news.
Interest rates remain at the highest level since 2007 at 4.5% as of writing. That rate isn’t likely to be cut in 2023, according to the Bank of Canada. At the same time, that rate may not be on the climb either.
Why? Because there is good news when it comes to inflation. Inflation rose to significant highs in summer 2022. But that was last summer. By this summer, inflation should continue its trend downwards. As of writing, the inflation rate sits at 4.3%. That’s almost half where it was at highs reached last year.
Signs of improvement … sort of
There are signs of growth in the economy, and this alone should hopefully lead to less of a chance at rate hikes. A combined stable interest rate and less inflation should therefore lead investors to perhaps be more interested in investing once more.
That being said, economists state that it can take a couple of months for job growth or declines to catch up to a slowdown. The unemployment rate may soon increase, and that could lead to a decline in the markets.
Yet what’s been particularly noteworthy are first-quarter results. Economists believed that sales would have come in lower, leading to slow market growth and perhaps towards a recession. Yet sales have been stable or growing for many earnings reports. This even includes in the housing sector, with home prices in Toronto slowly rising, for example.
Yet this means inflation may not fall as dramatically as hoped. As a report from Royal Bank of Canada states,
“Consumer demand probably needs to soften for inflation to return fully to central bank target rates. And the alternative to the relatively mild ‘bumpy,’ economic downturn we expect in 2023 could still look more like a crash landing down the road if substantially higher interest rates, and a larger pullback in economic activity, is required to get inflation fully back under control.”
What this means for investors
Investors looking to prepare for summer should continue to have a diverse portfolio of options. But this can be quite difficult to do on your own, which is why exchange-traded funds (ETF) are an excellent way to mitigate risk.
In particular, consider iShares S&P/TSX 60 Index ETF (TSX:XIU), which looks at the top 60 performing stocks on the TSX today. XIU stock gives you exposure to a nice diverse range of stocks, while still operating at a discount to the actual TSX today. Shares are up 5% year to date.
Then once it’s clear we’re out of a bear market, through a mild recession, and back into a bull market, consider these 60 stocks carefully. Then you might want to perhaps create your own portfolio of the strongest options on the TSX today.
