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Caution should be the watch word for Canadian investors in the current moment, says Corrado Tiralongo, chief investment officer with Canada Life Investment Management.
Speaking on the Soundbites podcast this week, he said the domestic economy remains fragile, with the housing market losing steam, exports under pressure, and unemployment rising.
“It is a fragile time,” he said. “For a long period of time, we felt the Canadian economy would enter a mild recession, and that looks like the pace and the direction that we’re going to.”
Although consumers are still spending, Tiralongo said that looks temporary.
“Growth turned negative in the spring and is struggling to gain traction,” he said.
Given the conditions, he anticipates two more interest rate cuts this year from the Bank of Canada.
“Inflation has cooled, tariffs have been rolled back, and that gives policy makers some room to ease,” he said. “But we don’t feel that they’re going to do so in a dramatic fashion. We believe that most likely the path is going to be a steady one [with] gradual reduction in rates. But if the slowdown deepens, the Bank of Canada will have to go further.”
In the coming year, he sees Canadian growth remaining weak, averaging less than 1%, with unemployment peaking around 7.5%.
“Rate cuts will help, but they won’t fully offset the weak exports and investment,” he said.
Meanwhile, in the U.S., GDP is rising and consumer spending is holding up.
“Personal income, sales and production are all trending in the right direction,” he said.
And while recent jobs data suggest the labour market is weakening, he does not believe slower hiring will feed into weaker spending in the near term.
“Our base case is that the U.S. avoids a recession,” he said. “We forecast the S&P to be around 6750 by the end of 2025, and 7250 in 2026, supported by resilient earnings and enthusiasm for AI. There are risks around the margins and whether the AI boom delivers, but for now big tech remains strong.”
And while Canada, Europe and the U.K. look vulnerable in the current moment, Tiralongo believes there are opportunities in non-U.S. equities, particularly among Asian exporters that are benefitting as firms around the world reroute goods to avoid barriers.
“That makes them a useful diversifier for investors who want to reduce reliance on U.S. tech,” he said.
Still, investors need to be prepared for more uncertainty.
“We don’t see things being dire, but growth is slowing, and growth will remain low across the globe,” he said. “This is not the time for investors to double down on risk.”
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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.