Canadian equites and interest rates: New opportunities as monetary policy eases

As investors might expect, interest rate sensitive sectors are the ones that are outperforming so far, with S&P/TSX financials and real estate income trusts (REITs) up 16%, and utilities up 11% through the end of October. And with the BoC expected to continue cutting rates the rest of the year and well into 2025, these sectors should continue to outperform for one key reason: they’re undervalued. Valuations in these sectors were negatively impacted by the higher interest rate environment we endured and continue to sit at levels well below historical averages.

However, in no way is this to imply that all the names in each of these sectors will increase in value. All birds may have wings, but not all birds can fly. This is why our Portfolio Managers are as careful as they are when selecting names for inclusion in the funds they guide. For example, one promising idea within the real estate sector is investing in retirement residences. Because of Canada’s ageing population, we see a long runway of demand for retirement residences outstripping supply, driven by favourable demographics and high construction costs.

As the BoC continues to cut its overnight rate, many other Canadian equity opportunities are expected to emerge as suitable candidates for inclusion in a balanced portfolio. And while Interest sensitives have outperformed year to date, their outlook is more nuanced. The combination of lower rates and a pro-growth Republican administration in the U.S. should re-accelerate economic growth, with sectors like financials, industrials, and consumer discretionary likely to outperform.

CIBC Asset Management is committed to providing market insights and in-depth research to help you find the right investment solutions. If you have questions about investing in Canadian equities or your investment portfolio, get in touch with your advisor or CIBC representative anytime.