2024 could be a mixed bag for the TSX, as economic conditions remain tight. Credit risk could rise in the first half as an interest rate cut will take some time to seep into the economy. Bank stocks could still feel the heat. Meanwhile, oil stocks could decline as oil prices normalize, provided the geopolitical tensions don’t aggravate. Sectors that dragged in 2023 could see recovery in mid-2024 or before.
What to expect in 2024 on the macroeconomic front
The central bank will likely reverse its monetary tightening and start cutting interest rates. Initially, the market will react positively to every rate cut. You could see a volatile recovery in interest rate-sensitive stocks like real estate and automotive.
Opportunistic buys to ride the 2024 recovery rally
I am bullish on Magna International (TSX: MG) and SmartCentres REIT (TSX: SRU.UN) while they still trade near their lows. Magna has been facing bottleneck after bottleneck in demand and supply of cars. However, they did not impact its secular growth from the electric vehicle (EV) adoption. The component maker has built capacity, improved operating efficiency, and focused on sustainable innovation.
These efforts will materialize and give Magna stock its long pending recovery as EV demand rises. Remember how airlines recovered after the pandemic. Something similar could be coming Magna’s way as it is a supplier for 23 of the top 24 EV original equipment manufacturers. Magna is also bracing to become the TSMC of autonomous vehicles in the future. Magna stock is trading below $77 but could comfortably surge past $120 in a cyclical upturn.
I have been bearish on SmartCentres REIT this year as its distribution payouts (96%) are too high and not sustainable for the longer term. High interest expenses are stressing its cash flows, even at a 98.5% occupancy. But the news of interest rate cuts gives the REIT some breathing room. It just has to hold off for another year without a distribution cut. Even though the risk is high, it sustained the 2008 financial crisis. If you bought SRU.UN shares near the 2009 dip saw ($9.8), your investment would have tripled to $30.8 throughout the three-year recovery period.
While the real estate investment trust may not see such a strong recovery rally this time, the unit price could surge 30-40%. You could lock in a 7.68% yield and benefit from capital appreciation by making an opportunistic buy at the dip.
2024 growth stock story
Growth stocks are up for a strong year in 2024, as they rely heavily on economic growth and high investor confidence for their rally.
Air Canada (TSX: AC) stock could see a seasonal high of $24 in 2024 summer. Fears of a recession are not ruled out. But there is optimism in the market. Moreover, the airline has been reducing its debt and increasing its net profit, which the market has not priced in. The airline stock is still trading above $18, closer to its resistance level of $15. If a recession hits, the stock could fall 17%, but if the economy dodges a recession, a 33% upside is possible.
Some other growth stocks to watch out for are those directly linked to economic activity. Payments platform Nuvei could flourish in an environment where consumer spending is high as it earns a fee from every transaction that happens on its platform.
Investing in value stocks with strong fundamentals can give your portfolio an opportunity to make the most of an economic recovery. The first half of 2024 could see tepid growth as investors approach with caution over fears of a recession. The second half could see a strong recovery, as interest rate cuts shift investors’ interest from bonds to equity. It is time to rebalance your portfolio for the 2024 stock market.
