Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, summarizes the week’s financial headlines and offers context for Canadian investors.
Before we look ahead to 2023, I want to thank writer Dale Roberts and our editorial team—Jon Chevreau, Lisa Hannam and Jaclyn Law—for covering while I was on vacation. Dale’s excellent recap of 2022 was a natural lead-in to a forward-looking piece about the big themes likely to shape the year ahead for Canadian investors.
Predicting markets and macro events is notoriously difficult. If you revisit the consensus forecasts made a year ago, many expected a robust recovery after COVID, strong labour markets and double-digit gains for stocks. Then the war in Ukraine and a persistent surge in inflation upended those assumptions. The lesson: major surprises are more common than most expect.
“Coming out of COVID, the economy is ready to run wild. Never have consumers had more money in their pockets and the country with more jobs than people to fill them. We’re predicting a solid year of 6%-plus gains in the stock market, with the potential for above-average returns.”
Rather than make hard forecasts I could be proved wrong on, I’ll outline the likely major stories for 2023 and highlight a few upside scenarios investors should consider.
Inflation will continue to dominate the conversation
Unemployment matters to those who are out of work, but inflation touches everyone. Rising prices for housing, fuel and groceries command attention and force politicians and central banks to act. Until inflation moves decisively closer to central-bank targets—more like 4% or lower—commentary will remain fixated on inflation and monetary policy.
Inflation itself isn’t the only issue for long-term investors; the central-bank response is. Interest-rate policy influences the value of all asset classes. Higher rates reduce borrowing and spending, squeeze corporate earnings, and generally lower the present value of future cash flows.
For years many investors relied on the idea of TINA—“There Is No Alternative”—and favored equities because fixed-income returns were negligible. Now, with term deposits and GICs offering attractive yields in the 5% range, low-risk alternatives to equities are suddenly much more compelling. That changes investor behaviour and can accelerate shifts out of riskier assets.
Real estate faces a similar challenge. As mortgage costs rise and home prices remain elevated relative to the pre-pandemic period, rental properties and direct real-estate investing become less appealing compared with high-yield, low-effort fixed-income options. Canadian REITs and other property exposures have already felt the pressure as investors reassess risk versus return.
In short: inflation’s immediate impact on households and the policy responses it triggers will remain the primary market narrative for 2023.
The Russian invasion remains predictably unpredictable
The scale and persistence of Russia’s invasion of Ukraine surprised most analysts. That uncertainty continues: neither a quick resolution nor a clear endgame is evident. From an economic standpoint the war has had substantial consequences.
- Russia’s economy has contracted by more than 5% and faces a prolonged downturn, with foreign direct investment plummeting and long-term demographic damage that will last generations.
- Ukraine lost a substantial portion of GDP in 2022, and its population and infrastructure suffer large, ongoing losses that will complicate recovery.
- Disruption to energy and food exports has weakened growth forecasts for Europe and many emerging markets, creating ripple effects for commodity markets and inflation globally.
If the war ended quickly, we could see rapid disinflation and renewed global investment. If it drags on or escalates, energy-dependent economies could face deeper damage. For Canada, higher commodity prices may boost resource sectors in the short term, but most Canadian economists view the conflict as a net negative for global stability and growth.
The recession debate will persist
Talk of a recession has dominated headlines, but the technical definition—two consecutive quarters of negative GDP growth—misses the point for most households and investors. What matters is the severity of any slowdown, whether it hits your job or business, and whether markets have already priced in the bad news.
With inflation showing signs of easing in recent months and monetary policy operating with long lags, it’s plausible we avoid a deep, prolonged recession. Even so, some sectors will feel more pain than others. Professional investors look beyond short-term headlines and try to avoid the recency bias that leads many to overreact to recent losses.
The more useful questions for investors are:
- How severe will labour-market weakness and economic contraction be?
- Will this affect my job or business?
- Have asset markets already priced in the potential damage?
My current read: the slowdown may be modest in aggregate, for most people job risk is limited, and markets have largely anticipated the challenges—though individual outcomes will vary by sector and region.
Six potential upside scenarios for 2023
While downside surprises remain possible—what Nassim Taleb calls “Black Swans”—it’s useful to consider positive, plausible outcomes that could lift markets.
- Forward-looking markets price in improved earnings-per-share growth, so stocks rally despite talk of recessions.
- Capital reallocates from speculative, low-productive assets like certain cryptocurrencies and unprofitable tech names into more sustainable, productive businesses.
- Supply chains adapt to a new normal, reducing bottlenecks and continuing the disinflationary trend that began in late 2022.
- Labour markets stay broadly resilient, allowing developed economies to withstand short-term weakness without a deep collapse in income or spending.
- Entrepreneurship and small-business formation accelerate, stimulating innovation and job creation in unexpected ways.
- Policy reforms that reduce red tape in housing and speed up construction lead to a better balance of supply and demand, improving affordability for first-time buyers without massive job losses.
Given these possibilities, I’ll offer a cautious, optimistic forecast: the S&P/TSX Composite Index could finish 2023 higher, perhaps around 12% growth to roughly 21,600. That’s a prediction, not a promise—markets can always surprise, and the outcome could easily swing the other way.
Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances at MillionDollarJourney.com and through the Canadian Financial Summit.