Everything that goes up comes down. So I have some very good news and some very bad news for 2024.
Let's start on a positive note with the good news.
Having recently peaked, interest rates will fall in the coming quarters, much to the relief of households.
The downward move is likely to begin towards the end of the second quarter, when the Bank of Canada will begin easing its monetary policy by cutting its key interest rate quarter point by quarter point.
Within just under 16 months, from March 2022 to July 2023, the base rate had risen from 0.25% to 5%, 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 interest rate is eagerly awaited.
From the current 5%, the key interest rate could fall by 1 1⁄2 percentage points to end 2024 at 3.5%.
Such a possible reduction would, of course, result in interest rates on loans offered by banks and credit unions falling by the same or nearly the same amount.
The worst thing about the stock market
Now for the bad news.
After the stock market has made rapid progress since the beginning of November and has reached very high levels compared to expected profits, it is likely to bring speculators back down to earth with a strong downward correction.
When? Nobody knows the exact time. However, one thing is certain: if the predictions of the National Bank financial analysts come true, we will experience a severe stock market depression.
National Bank Financial analysts Stéphane Marion, Matthieu Arseneau and Alexandra Ducharme predict a sharp decline in the stock markets.
The Canadian Stock Exchange's forecasts for the second quarter of 2024 lower the level of the Toronto Stock Exchange's S&P/TSX index to 18,000 points.
Compared to current levels, the potential decline would be around 14%.
Things would be even worse on the American stock market.
Analysts at National Bank Financial see the New York Stock Exchange's main index, the S&P 500, falling to a level of 3,800 points.
If this decline occurs, the American stock market would fall by 20% compared to its level at the beginning of the week.
These stock market correction forecasts are based on the assumption that corporate earnings will decline in 2024 by 5% for Canadian companies included in the S&P/TSX and by 10.5% for large American companies included in the S&P 500 .
In addition, among Desjardins analysts we are less “fragile” towards the stock market.
Their 2024 “targets” call for a 5% decline for the Toronto Stock Exchange’s S&P/TSX and a 7% decline for the New York Stock Exchange’s S&P 500 compared to current levels.
We're talking… Be aware that it is the nature of the stock market to fluctuate wildly throughout the year, both up and down. This happens every year.
Historically, you should know that the best buying opportunities come during sharp stock market corrections.
And historically, you should also know that the worst mistakes investors make is liquidating their stocks after sharp corrections. Take it for granted!
And remember that after a strong correction, a return to the uptrend will follow!
RECESSION OR SLOW DOWN?
Although Finance Minister Eric Girard rejects for now the hypothetical “technical recession” that Quebec is in after two negative quarters in a row, it is very likely that he will soon be forced to correct the situation.
Due to the very high level of interest rates caused by the Bank of Canada's staggering increase in the key interest rate to combat inflation, the Canadian economy is slowing down significantly.
For this reason, several economists are forecasting at least a slight decline in real GDP in 2024, in the range of -0.2% to -0.4%. This contrasts with recent economic updates from Finance Ministers Chrystia Freeland and Eric Girard.
For 2024, Minister Girard forecast Quebec's real GDP growth of +0.7%. For her part, Federal Minister Freeland expected Canada's real GDP to grow by +0.4%.
In any case, the economy will slow down for much of the new year 2024.
It is to be expected that there will continue to be layoffs.
This will obviously increase the unemployment rate for Canada as a whole to 6.3% to 6.8%.
Quebec is expected to emerge with an unemployment rate between 5% and 5.7%, compared to 4.3% in 2023.
For their part, the Bank of Canada monks would like to see inflation fall below 3%, or perhaps even into the 2.5% to 2.8% range.
What about house prices?
Future first-time buyers who were expecting significantly lower house and condo prices to purchase their first home in 2024 will need to rethink their strategy.
According to the Quebec Association of Real Estate Agents, the median house price is expected to remain at about the same level as in 2023.
On the other hand, since interest rates have stabilized since last fall, this bodes well for mortgage rates in 2024, which should begin to decline once the Bank of Canada begins cutting its base rate.
Whether it is negotiating a new mortgage or an extension, owners in 2024 will have an interest in betting on the variable rate as it will decrease in line with the reduction in the base rate.
To the delight of tenants, rent increases in 2024 are likely to be relatively small, as inflation will fall back to around 2.5%.