Prab Sagoo, associate director at Nasdaq Advisory Services, explains in his weekly market commentary how investors are likely to react to recent projections of Canadian economic performance.
- With the economy expected to suffer notable headwinds in the near term, investors will likely continue to chase elevated yields in their search for a more profitable investment alternative to the paltry returns provided by bonds.
- If we get further monetary easing from the Bank of Canada, it will continue to amplify the chase for higher yields. However, the downside risks are significant: If the underlying state of an investment is not carefully evaluated, investors could be setting themselves up for further losses.
- High-yielding companies that have predominantly domestic income streams will face profitability headwinds and those without appropriately strong balance sheets will likely face questions about the sustainability of their dividends. Energy companies have seen the brunt of this following the contraction in the price of crude.