Canada in fact experienced a market correction of more than 10% in 2022. It also came perilously close to the 20% fall defined as a bear market. The S&P/TSX composite index reached a peak of 22,085 on April 4, 2022.2 Then it dropped to 18,206 on October 12, a decline of 17%.2
So why are people talking about a recession?
The two phenomena aren’t always related, even though historically a recession often follows a market correction. Canada has had five recessions lasting six months or more since 19703:
- January 1980 to June 1980 (6 months)
- June 1981 to October 1982 (17 months)
- March 1990 to April 1992 (13 months)
- October 2008 to May 2009 (8 months)
- March 2020 to August 2020 (6 months)
Many investment experts believe a recession may happen in 2023. Several indicators point in this direction, such as housing. As well, the Bank of Canada’s recent interest rate hikes have aimed to cool the economy and push down inflation. That’s why a recession might be on the way.
The key is – don’t panic
Whether or not Canada is on the verge of a recession, the key for investors is to not panic and to not make hasty decisions. By staying invested in the markets, you are likely to benefit from a rebound that often follows a drop in the markets. In fact, you can perhaps make the most gains on your investments when markets are at their lowest point.
If you’re stressed about negative economic news, it may be a good time to talk to your advisor. Or find an advisor if you don’t already have one. An advisor can help you review your risk tolerance. An advisor can also make sure your investments are diversified so that they increase in value over the long term and help you to reach your financial goals.
