indicatorMarkets and Economy

2023 Outlook: David Rosenberg’s advice for Canadian business

15 February 2023 5 min read

David Rosenberg speaking at an ATB Capital Markets event

Canadians are bracing for a rough economic year.

“Increased interest rates, supply chain issues, and geopolitical risks will continue to impact our economy, forcing companies to revise strategies, carefully manage balance sheets, and identify fresh opportunities in existing and new markets,” said Darren Eurich, CEO of ATB Capital Markets.

ATB recently hosted its 11th Annual Institutional Investor Conference in Toronto. During the event, analysts from ATB Capital Markets and presenters from 54 companies across diverse sectors provided their outlook to institutional investors.

Keynote speaker and Founder of Rosenberg Research & Associates Inc., David Rosenberg, shared his insights on the challenges and opportunities we can expect in 2023. He shared his perspective on how companies can weather economic pressures and achieve growth.

Here are the top five takeaways from his presentation:

1. A recession is coming, but it won’t last long.

Last year, the central bank aggressively raised interest rates. This year, we will see the impact of these rate hikes ripple through the economy.

Rosenberg predicts that the central banks will lower interest rates in the second half of 2023 as inflation drops significantly. Historically, recessions happen when we come out of a Fed-tightening cycle. Rosenberg said that the Fed and the Bank of Canada will take us into a recession. However, he emphasizes that recessions don’t last forever.

“This year is an off year for the economy, and we must be patient,” said Rosenberg. “But the thing about recessions is they tend to be brief—two, three or four quarters. Expansions are long and strong.”

2. Inflation is transitory.

The past few years saw a global health crisis, an economic lockdown that disrupted supply chains, and a war in Ukraine. All these factors contributed to inflation.

But inflation numbers are already coming down, and the Bank of Canada forecasts that inflation will return to its two percent target by the end of 2024.[1]

History shows us that inflation caused by wars and pandemics is temporary. A century ago, WWI and the Spanish Flu led to supply shortages and inflation. This inflationary period lasted about 18 months and then reverted to the norm, which was basically zero, for the next ten years.

“Eighteen months in the overall annals of economic history is pretty transitory,” said Rosenberg. “F. Scott Fitzgerald wasn’t discussing inflation in The Great Gatsby.”

3. Look at the bond market to predict interest rates.

The bond market always gets the interplay between long- and short-term interest rates right. Looking at this market can tell you where interest rates are headed.

Pay attention to the 2s10s yield curve, or the difference in interest rates between two-year and ten-year Treasury bonds. Long-term rates are typically above the short-term rates, as money increases in value over time. But long-term rates are currently below short-term rates. This inversion is the bond market’s way of telling central banks, “You’ve overdone it and are sending the economy into a recession.”

Bond yields typically decrease before the central banks cut interest rates. Yields peaked last October, and are expected to decline throughout the year. With bond yields diminishing, the central banks will likely cut short-term rates in the second half of 2023.

4. The stock market hasn’t bottomed.

The Dow Jones Industrial Average is usually down more than 9% before a recession starts. Last year, the Dow was down this amount, while the S&P 500 and Nasdaq saw more significant drops.

However, the stock market hasn’t come close to bottoming. It usually hits bottom deep into a recession and after the Feds have eased policies dramatically. The Feds are still raising interest rates and haven’t started easing yet.

5. Before you turn bullish on stocks, turn bullish on bonds.

Stock volatility is extreme during a recession.

“If you want to turn bullish on something, turn bullish on bonds,” said Rosenberg. “Government bonds are always a great option during a recession. You’ll get price appreciation with bonds that you won’t get with stocks.”

If you want to invest in stocks, own dividend payers with strong balance sheets and a history of paying out in good times and bad. Gold is also a good investment, as it also holds its value. Commodities tend to perform well during recessions, although higher demand can drive up prices.

Don’t invest in equities, as they are cyclically sensitive and the worst-performing assets during a recession. Emerging market equities are particularly risky.

This year will have many ups and downs. Things won’t improve tomorrow, but history tells us that we can recognize and navigate this cycle. Focus on patient, disciplined investments and seek guidance from your financial advisor.

Need help navigating the storm?

Reach out to your ATB representative or email ATB Business to learn what actions you can take to protect your business in this market.

Discover how ATB Capital Markets can help your business thrive with corporate and investment banking solutions.

ATB Financial Markets Update: February 2023

Watch the experts from ATB's Financial Markets Group address interest rates and foreign exchange trends for February 2023.

About David Rosenberg

David Rosenberg is the Founder and President of Rosenberg Research & Associates Inc., an economic consulting firm he established in January 2020. He and his team have as their top priority providing investors with analysis and insights to help them make well-informed investment decisions.

Prior to Rosenberg Research, David was Chief Economist & Strategist at Gluskin Sheff + Associates Inc. from 2009 to 2019. From 2002 to 2009, he was Chief North American Economist at Merrill Lynch in New York, during which he was consistently ranked in the Institutional Investor All-Star analyst rankings. Prior thereto, he was Chief Economist and Strategist for Merrill Lynch Canada, based out of Toronto, where he and his team placed first in the Brendan Wood survey of Canadian economists for ten years in a row.

Mr. Rosenberg is a frequent contributor to most major financial newspapers and publications in North America and makes regular TV appearances in the financial media. He received both a Bachelor of Arts and Masters of Arts degree in Economics from the University of Toronto.

Learn more about Rosenberg Research.


[1] Global News: Inflation has ‘squeezed’ Canadian wallets dry. What happened? January 10, 2023

Need help?

Our ATB Business Solutions team will be happy to assist.

Chat now
ATB Virtual Assistant
The ATB Virtual Assistant doesn't support landscape mode. Please tilt your device vertically to portrait mode.