With inflation continuing to linger into the summer months and the Bank of Canada still on pause, many wonder what the next course of action will be. Undoubtedly, raising the bar on interest rates and stabilizing prices seems to be the move, but things are certainly more complicated on this side of the border, especially since the employment picture isn’t quite as bright.
At this juncture, staying on pause could be the move, and that could bode well for the big bank stocks, which have been hot of late, to say the least. In my view, rate hikes are less likely for the second half of 2026. That is, unless some sort of commodity shock (let’s say the Strait of Hormuz stays blocked for longer) adds fuel to inflation.
Interest rate policy moves markets, but it shouldn’t cause you to hit the panic button
With higher hopes for a peaceful resolution and oil prices taking a bit of a dive, it feels like monitoring the situation and reacting after the fact is the move. Personally, I don’t think a pre-emptive rate hike will hurt, especially since inflation has been so stubborn. In any case, long-term investors shouldn’t time the Bank of Canada, inflation, oil prices, the macro picture, the state of the consumer, or anything of the sort.
For the most part, it’s wasted effort. Instead, I’d strongly encourage new investors to look for value in corners of the TSX Index or the U.S. markets that most other investors may neglect. Indeed, with red-hot AI IPOs and momentum in the semiconductors, it can be quite easy to pass on real value that’s hiding in plain sight or perhaps forgotten in the depths of the software scene.
For the most part, I do not think investors should hit the panic button over short-term predictions, even if made by a genius investor (think Michael Burry, who was made famous by his shorts in The Big Short) with the track record to show. If rates stay stuck or gravitate higher going into 2027, I do think investors should be ready to own firms that can deal with such a move.
Intact Financial
If rates move higher and stay there, I’m a fan of a name like Intact Financial (TSX:IFC), a property and casualty (P&C) insurer, that could continue its bull run, even if a few rate hikes were to be delivered by the Bank of Canada. The stock trades at 15.7 times trailing price-to-earnings (P/E), which, I believe, is way too cheap for a premier Canadian insurer of this calibre.
The stock hasn’t really gone anywhere (other than in circles) in the past year, down around 2% over the time span. With a decent 2.1% yield and the ability to thrive in a higher-rate world, I’d not overlook the name, especially now that expectations have been reset after an off year.
In my view, shares of IFC are a great play for investors looking for a great company that won’t take a hit to the chin if higher rates and stabilizing prices were to become the Bank of Canada’s top priority in the year’s latter half. In other words, the company’s robust fundamentals and growth story would still very much be intact.
