Indebted Canadians are prioritizing mortgages over their essentials
The delay in rate cuts from the Bank of Canada has impacted consumer stocks as Canadians with high debt place mortgage payments as a priority over non-essentials, as reported in an article by Bloomberg.
Philip Petursson, the chief investment strategist of IG Wealth Management, stated that the main equity index in Canada will struggle should investors believe that the central bank will delay rate cuts.
Following US inflation data being hotter than initially expected, traders have shown pessimism that the central bank will lower borrowing costs in the first half of 2024, which will potentially cause headwinds for banks, utilities, and rate-sensitive heavyweights in the market.
“If interest rates are pushed off, then the upside of those stocks get pushed off as well,” said Petursson.
Some consumer stocks have been feeling pressure since many Canadians with a lot of debt have been setting more money aside from their salaries to pay off their mortgages, which leaves little room for non-essential purchases.
Notably, shares from Canadian Tire Corp, a big-box retailer, fell after the firm reported earnings of $3.38 per share for Q4, which was far from forecasts.
Greg Hicks, Canadian Tire’s CEO, stated that the uncertainty surrounding interest rates had resulted in its management adjusting operations following weakening demand for discretionary items compared to essential goods.
“If the intent of restrictive monetary policy was to curb consumer demand and slow the economy, we would certainly say the policy strategy is working,” said Hicks.
