Everything that goes up comes down. So, for 2024, I have some very good news and some very bad news.
Let’s start positively with the good news.
Having recently reached their peak, interest rates will fall over the coming quarters, much to the relief of households.
The downward movement should begin towards the end of the second quarter, when the Bank of Canada will begin to loosen its monetary policy, by reducing its key rate, quarter point after quarter point.
In the space of barely 16 months, from March 2022 to July 2023, the key rate had risen from 0.25% to 5%, thus dramatically increasing the cost of all loans: mortgage loans, car loans , personal loans, business loans, credit card balances, etc.
We agree that the future reduction in the key rate is impatiently awaited.
From 5% currently, the key rate could fall by 1 1⁄2 percentage points, to end the year 2024 at 3.5%.
Such a possible reduction would obviously have the effect of lowering the rates of the range of loans offered by banks and credit unions by as much or almost as much.
THE WORST WITH THE STOCK MARKET
Now for the bad news.
After having progressed at breakneck speed since the beginning of November and reaching very high levels compared to anticipated profits, the stock market should bring speculators back to earth with a solid downward correction.
When? Nobody knows the precise moment. But one thing is certain, we should go through a nasty stock market depression if the forecasts of National Bank Financial analysts materialize.
Analysts Stéphane Marion, Matthieu Arseneau and Alexandra Ducharme, from National Bank Financial, predict a sharp stock market fall.
As for the Canadian Stock Exchange, their forecasts for the second quarter of 2024 lower the level of the S&P/TSX index of the Toronto Stock Exchange to 18,000 points.
Compared to the current level, the potential decline would reach around 14%.
It would be worse on the American stock market.
National Bank Financial analysts see the main index of the New York Stock Exchange, the S&P 500, falling to the level of 3,800 points.
If this decline materializes, the American stock market would fall by 20% compared to its level at the start of the week.
These stock market correction forecasts are based on the premise that corporate profits will decline in 2024, by 5% for Canadian companies making up the S&P/TSX and 10.5% for large American companies included in the S&P. 500.
Furthermore, among Desjardins analysts, we are less “brittle” towards the stock market.
Their “targets” for 2024 show, compared to current levels, declines of 5% for the S&P/TSX of the Toronto Stock Exchange and of 7% for the S&P 500 of the New York Stock Exchange.
We talk… Know that it is the nature of the stock market to fluctuate strongly during the year, both up and down. This happens every year.
Historically speaking, you should know that the best buying opportunities occur during severe stock market corrections.
And historically speaking, you should also know that the worst blunders investors make are when they liquidate their stocks following sharp corrections. Take it for granted!
And remember that after a severe correction, a return to an upward trend will follow!
RECESSION OR SLOWDOWN?
Although the Minister of Finance, Eric Girard, rejects for the moment the hypothetical “technical recession” in which Quebec finds itself after two negative quarters in a row, it is very possible that he will soon be forced to rectify the situation.
Due to the very high level of interest rates generated by the dizzying increase in the Bank of Canada’s key rate in an attempt to counter inflation, the Canadian economy is clearly slowing down.
This is why several economists predict, at the very least, a slight drop in real GDP in 2024, of the type -0.2% to -0.4%. This contrasts with recent economic updates from Finance Ministers Chrystia Freeland and Eric Girard.
For the year 2024, Minister Girard forecast growth in Quebec’s real GDP of +0.7%. For her part, Federal Minister Freeland expected growth of +0.4% in Canada’s real GDP.
In any case, the economy will slow down for much of the new year 2024.
Layoffs are expected to continue.
Which will obviously increase the unemployment rate to the range of 6.3% to 6.8% for Canada as a whole.
Quebec should get away with an unemployment rate varying between 5% and 5.7%, compared to 4.3% in 2023.
For their part, the Bank of Canada monks will appreciate seeing inflation fall below 3%, or even within the range of 2.5% to 2.8%, possibly.
WHAT ABOUT THE PRICE OF HOUSES?
Future first-time buyers who were counting on a marked drop in the price of houses and condos to purchase their first home in 2024 will have to revise their strategy.
According to the Professional Association of Real Estate Brokers of Quebec, the median property price should remain approximately the same level as in 2023.
On the other hand, as interest rates have plateaued since last fall, this bodes well for mortgage rates in 2024, which should begin to decline as soon as the Bank of Canada begins to lower its key rate.
Whether negotiating a new mortgage or a renewal, owners will have an interest in 2024 in banking on the variable rate, since it will fall in line with the reduction in the key rate.
To the delight of tenants, rent increases should be relatively low in 2024, since inflation will fall back to around 2.5%.