The top Canadian banks, according to one portfolio manager, are pricing in a recession to start around the end of the year, which is hurting sentiment for bank stocks.

Bank stock performance has lagged behind that of the Toronto Stock Exchange, according to Amit Joshi, an associate portfolio manager at Barometer Capital Management, who spoke on Tuesday.

We’ve reached a point where, in his words, “we believe that the banks themselves are pricing in the worst-case scenario in terms of a recession towards the end of this year or early next year.” Investors are now “jittery holding the bank stocks,” according to Joshi, as a result of this.

Bank of Montreal and Bank of Nova Scotia will be the first lenders in the group to announce second-quarter profits on May 24.

Joshi said that Canadian bank dividend yields are still very high, “sitting at about 4.8%,” nonetheless.

Although Joshi said he is taking a “wait and see” stance concerning holding Canadian bank stocks, he added that there are encouraging indicators to be seen in the economy’s consumer statistics, which are still “very strong.”

“In my opinion, all you need is consistency in credit and bank performance. We need to keep an eye on revenue growth. We wish to pay close attention to the net interest margin. Funding costs have been increasing, so this time around, that will be a significant priority, he said.

According to Joshi, there are also notable differences between the Canadian and American banking industries.

“The Canadian banks are different from the U.S. in terms of being very well capitalized, especially when compared to the U.S. regionals,” he added, adding that they have a sticky deposit base.

The nation’s biggest lenders are expected to have a challenging quarter, according to research published last week by analysts at RBC Capital Markets, who also noted that the macroeconomic environment has grown more ambiguous.