BoC Cuts Rates: Which Sector Is Poised to Benefit?

The Bank of Canada has reduced its key interest rate, making it the first among the Group of Seven central banks to kick off a monetary easing cycle.

Historical data from rate-cut cycles between 2000 and 2022 highlights several sectors that have benefited from such financial trends:

Historical data from rate-cut cycles between 2000 and 2022 highlight several sectors that have benefited from such financial trends. Consumer Staples, Real Estate, Financials, and Information Technology are sectors sensitive to interest rate changes. With the recent prolonged period of elevated interest rates, valuations within these sectors have fallen to attractively low levels. This trend is particularly evident in the real estate sector, where current valuations are over 55% below the two-decade average spanning from 2000 to 2024. Anticipating lower borrowing rates, a surge in demand for housing is expected. Furthermore, the favorable low-rate environment enables Real Estate Investment Trusts (REITs) to secure financing at reduced costs, which can significantly boost their profitability and enhance their dividend-paying capabilities.

During the conference, BoC Governor Tiff Macklem demonstrated confidence in managing inflation and shared a positive outlook on Canada's economy:

1. Canada's economic growth could temporarily surge beyond its current potential, suggesting an opportunity for further expansion. Q1 saw more modest growth than anticipated. However, consumption growth was robust and business investment and housing activity increased.

2. A 'soft landing' is projected for the Canadian economy

3. Population growth is expected to align with the Bank of Canada's forecasts, without significant deviations.

With the shift to the rate-cut phase and a positive economic outlook, investors are likely to encounter a new investment landscape, where sectors with current attractive valuations may see further upward potential.