When interest rates start going down, it seemingly makes life better for everyone. Reduced rates mean better buying power for consumers. For stock market investors, it can be a much-welcome sight because rate cuts act like a wind in the sails of publicly traded companies.
Historically, the Canadian stock market has always seen improved performance during interest rate cuts. We are currently witnessing a boom in the Canadian equity markets, reflected by the Canadian benchmark index’s performance. As of this writing, the is up by a massive 8.
32% since its August 7th levels. This should not come as a surprise since lower interest rates make borrowing cheaper for everyone, from consumers to large businesses. Lower borrowing costs and growing consumer spending boost corporate profits.
In turn, stock prices go up. To make things even better for the stock market, lower returns from bonds mean more investors will flock to the stock market for better returns, causing share prices to go even higher. All that said, lower interest rates don’t necessarily mean the stock market will shoot up in a straight line.
is always on the cards in the short term. In the grand scheme of things, lower interest rates indicate a return to strength for the economy. So, while the market might be a little volatile for some time in the aftermath of the rate cuts, investors with a long investment horizon might be rewarded for making well-placed bets.
Today, I will discuss one such stock investors can cons.