[Moo Brief] BoC cuts rate to 4.5% as expected: Which sectors to invest in？
On June 5th, the central bank reduced its overnight lending rate from 5% to 4.75%, marking the first decrease after a series of hikes that commenced in March 2022.
On July 23, the Bank of Canada made the second rate cut since 2022 from 4.75% to 4.5% considering Canada's inflation fell to 2.7% in June.
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Going forward, more cuts to come?
Tiff Macklem, the governor of the Bank of Canada, said on Wednesday “If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” which implies the increasing probability of future rate cuts.
Consumer Staples, Real Estate, Financials, and Information Technology are sectors sensitive to interest rate changes.
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➤ Consumer staples
Individuals are more willing to consume in a low-rate environment as consumers may have more disposable income to spend on non-discretionary items, such as food and household products.
➤ Materials
The materials sector benefits from increased demand for infrastructure and development in a low-interest rate environment.
➤ Real estate
Mortgage rates fall so the real estate market is active. As interest rates decline, bond proxies like REITs and utilities become more in demand. Lower interest rates can make it more affordable for consumers to borrow money to purchase homes. This can increase demand for real estate and benefit companies in the Real Estate sector.
➤ Utilities
Utilities are typically seen as a defensive sector, and their stocks are often considered to be bond-like investments because they offer relatively high dividends and stable earnings. When interest rates decrease, the yields on bonds and other fixed-income investments also fall, making high-dividend stocks like utilities more attractive to income-seeking investors. Additionally, utility companies may benefit from lower borrowing costs, which can help them finance capital projects and expand their operations. However, it's worth noting that some utility companies have relatively high levels of debt, so a prolonged period of low interest rates could potentially increase their financial leverage and risk.
➤ Financials
Banks and financial institutions are expected to benefit from increased economic activity. A rate cut can lower borrowing costs for banks and other financial institutions, which can increase profitability. Additionally, lower interest rates may encourage consumers to borrow more money, which can benefit companies in the Financials sector.
➤ Cryptocurrency
It's difficult to predict how a rate cut will impact Bitcoin ETFs because they are a relatively new investment product and do not have a long track record. However, some investors believe that Bitcoin may benefit from a rate cut because it is a non-correlated asset.
➤ High dividend products
Because of their consistent returns, dividend-paying companies are more appealing at lower interest rates. High-dividend target industries tend to be more established, have more developed manufacturing and management processes, and have steady operations. Transportation, oil and petrochemical goods, coal, banking, and home appliances are the top five industries for listed businesses with the greatest dividend yields in 2023.
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➤ Long-term bond
If interest rates drop, long-term bonds might gain value because investors seeking a stable income stream will find them more appealing. Nonetheless, long-term bonds can lose value if interest rates rise in the future.
➤ Growth stocks
Growth stocks like technology companies can benefit from lower borrowing costs in a low-interest rate environment, making it easier for them to fund expansion plans and innovate. Tech firms that are concentrating on growing their operations, creating new goods or services, or funding R&D may benefit from this. Furthermore, because growth companies are thought to have better long-term growth prospects, investors might be more prepared to pay a premium for them in an environment of low interest rates. When investing in growth stocks, investors should carefully assess their risk tolerance and investment goals as these stocks can be volatile and are often more sensitive to changes in market sentiment and economic situations.
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As an investor, how would the rate cut affect your portfolio? Which sectors are you willing to invest in under a low-interest rate environment？![]()
Please drop your answer with reasonable comments, and you will receive 66 points. ![]()
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Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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mr_cashcow : Rate cuts by the Federal Reserve can benefit various sectors and I will keep an eye out for the following:
Real Estate: Lower interest rates make borrowing cheaper, increasing demand for rental shops and boosting REITS
Automotive: Reduced interest rates lead to lower car loan rates, stimulating car sales which will benefit EV stocks
Consumer Goods and Retail services: As borrowing becomes cheaper, consumers may increase spending on goods and services and in turn boost service provider's stock price
Financials: While rate cuts can reduce bank profit margins, they may also increase demand for loans and stimulate financial activities which in turn boost bank share prices
Disclaimer: All the above are purely for educational purposes and are NOT financial advise, please DYOR/DD
udang merah : Interest rate cuts can boost consumption
black torn : People are more willing to spend
104661243 : Real property prices drop more than 50%. Should invest in quality real property.
tekka : Reduced interest on loans boosts consumer desire
musang queen : Promoting consumption
redevilgiggs : Interest on loans will decrease, item prices will also decrease, and consumption will increase
010Leo : will be looking into mid and short term bond fund investments.
less focus on tech funds but rather into dividend and growth stocks.
for Canada, banks, railway, resources deserve another look.
stay invested, read moomoo reports.
73320443 : Real estate banks