June 5, 2024

Wednesday proved to be yet another day where it was good to be an equity investor. The S&P 500 was up a stout 1.2% while Toronto was up 0.8%.

Nvidia (not on out list) was up another 5.2%!

Stantec was up 2.2%. Toll Brothers was up 2.7%. AutoCanada was up 3.5%.  Aecon Group was up 4.3%.

lululemon released earnings after the close and is currently up about 10% in after-hours trading. This may or may not hold up in regular trading tomorrow.

The Bank of Canada lowered its rate by 0.25% to 4.75%. This was expected.

The yield on the five year government bond had, in the past few days, largely anticipated the cut and is down to 4.45%. That’s a substantial drop from the 4.85% level of last week. More rate cuts are expected but the timing is unknown and how far rates will drop is unknown.

Lower rates are definitly positive for long-term bonds and for most higher-yield investments including the likes of Fortis Inc. and RioCan.

Perpetual preferred shares should also benefit.

Those rate reset preferred shares that have recently reset at higher dividends and that will not reset for another four or more years should also benefit. On the other hand a rate reset such as ENB.PF.A which resets late this year could suffer as the market’s expectation of  its reset dividend level will likely decline. A similar comment applies to TDB.PF.A although the market may be assuming that TD will redeem it at $25.

The various high yield accounts that have been paying 4.55%  will presumably now drop to 4.2%.

I believe Canadian Western Bank will benefit from lower interest rates. That may not be the case for the larger banks but I believe it is the case for CWB which has a different profile of deposits and loans compared to the bigger banks. CWB relies much more heavily on GICS issued through brokers and those rates will come down. The larger banks may have significant checking accounts paying 0% and those deposit costs will stay at 0%.


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