With the Bank of Canada (BoC) recently holding off on making a move (rate cuts or hikes) once again, investors might be wondering what the next big move is and how one should position their portfolios for the second half and the start of 2027. Indeed, the whole rate climate is tricky right now, with inflation rearing its ugly head again, all while Canada’s labour market shows just a hint of softness, at least as of the last unemployment report. Any way you look at it, there are two big forces at play, and the next move isn’t all that obvious.
Either way, as more data comes in (think CPI and the whole employment situation), the path forward might become that much clearer. In any case, the energy shock and food inflation, I think, make the case for higher rates stronger as we go into the second half of 2026. Sure, there might be a bit of weakness in the economy, but, in my view, I’m not so sure a quarter basis-point cut or two will make all that much of a difference, at least over the medium term.
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Rates are on hold, but for how long?
When you consider the longer-term impact of AI, the big question is whether we’re entering a new kind of era where you can no longer “rate cut” your way to better employment. And while AI has caused inflation in some corners of the market, most notably electronic components and energy prices in some localities, it’s the structural disinflationary impact that might pave the way for a lower-rate world over the long run. Indeed, drastic software and service deflation seems likelier than not, especially if agents really kick into high gear in the next two to three years.
Either way, I think preparing for a few interest rate hikes followed by a retreat back to today’s levels or maybe even a bit lower could be the likeliest scenario. Of course, some surprises could derail the trajectory, but, for the most part, I think investors should invest, regardless of the policy.
Couche-Tard: A winner, even as rates rise
Regarding the kinds of dividend stocks that’ll probably win in this climate, I think Alimentation Couche-Tard (TSX: ATD) stands out. It’s got a steady growth pace and plenty of cash on the sidelines to acquire its way to greater growth while unlocking solid synergies from every deal. Indeed, it’s the pristine balance sheet that will help Couche-Tard absorb the blow if rates were to head higher.
At the same time, though, if rates are destined to go lower over the longer run, I like the setup for Couche-Tard even more since it could supercharge the company’s growth-by-acquisition formula. For now, though, I think Couche-Tard’s sound financial positioning, cash flows, and value proposition could make it an acquirer with deep pockets in a climate that could open up more relative bargains across the convenience retail landscape.
If rates stay elevated for some years longer? Couche-Tard could win big as other, less financially sound peers in the space face a bit more pressure while their valuations become more challenged. For an acquirer of value, I’d say such a climate bodes very well for the likes of a Couche-Tard. Add the ability for AI to drive efficiencies and reduce costs behind the scenes, and I like the potential margin opportunity that’s ahead. Higher rates for longer? For Couche-Tard, that might be a surprising positive.
