Lower interest rates are often synonymous with good news for stock markets. But not all stocks benefit to the same extent. Here are our experts’ tips for buying stocks with growth potential today.
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– What actions should we focus on at the end of 2024?
Who says lower rates, says bad news for liquid and secure investments (super savings accounts, term accounts, etc.). Their remuneration is in fact directly correlated to the monetary policy of the European Central Bank (ECB). In short, the higher the key rates, the more the savings placed in them yield. On the other hand, this is rather a good outlook for stock market investors. The reductions in key rates, enacted by the ECB on September 12 and then by the American Federal Reserve (Fed) a week later, will reduce the cost of credit for individuals and companies, which should in principle boost consumption and allow the latter to invest more easily in their activity and their future growth. The key: results that should push up the dividends of listed companies and their stock market valuation.
That’s the theory. In practice, however, we will have to continue to be selective, because rate cuts do not benefit all stocks to the same extent. For example, small and medium-sized companies (called “small and mid caps” on the stock market) are more sensitive to the cost of financing and refinancing their activity, “So when central banks lower rates, they tend to raise them more sharply than others.”notes Grégoire Kounowski, Investment Advisor at Norman K.
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Thus, betting on small and mid-caps (on the Russell 2000 index in the United States, or on the CAC Mid&Small in France) is a first opportunity, especially since the valuation of these companies has been falling for several years, “because investors have long feared a recession that ultimately never happened. In the United States, for example, we have reached such low points that even in the event of a slight contraction in activity, we should not see a downward effect.”explains Alexandre Baradez, financial analyst at IG France.
Real estate, banks and utilities: three avenues to focus on
Following this same logic, three sectors could benefit directly from the easing of rates, whether small or large caps: real estate, banks and infrastructure. For the first two, easier access to real estate credit should indeed be synonymous with a revival of activity. For real estate, we will think in particular about betting on European real estate companies listed on the stock exchange (Unibail-Rodamco-Westfield, Klépierre, Gecina, Covivo, Icade, etc.), which are also at historically low valuation levels.
Stock market: where are the CAC 40 and the Nasdaq going after the Fed’s rate cut?
On the other hand, as far as banks are concerned, “Political uncertainties in France and weak growth forecasts encourage us to remain cautious about Europe”warns Grégoire Kounowski. It may therefore be necessary to turn to the American banking sector (JPMorgan Chase, Bank of America, etc.) rather than the French heavyweights (Société Générale, BNP Paribas, etc.), which have fallen on the stock market in recent days.
Finally, there remains the infrastructure sector, or “utilities” in English, that is to say all the values which provide services to communities (distribution of energy, water, telecoms, etc.). “Companies that are used to performing well once the rate cut cycle beginsrecalls Grégoire Kounowski. Because these are companies that have to invest significant sums, and which will therefore be able to refinance their activity at lower rates.” To stay in Europe and on the CAC 40 in particular, it is therefore advisable to look closely at stocks like Veolia, Engie, or even Orange.
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