Why Brookfield Stock Gained 1% Monday

Brookfield (TSX:BN) gained nearly 1% Monday despite overall market weakness.

| More on:

Image source: Getty Images

Brookfield (TSX:BN) stock had a surprisingly good day Monday, despite the broader stock market indices tanking. For the day, the stock was up roughly 1% – specifically, 0.85% on the TSX and 0.96% on the New York Stock Exchange. On the same day, the NASDAQ was down 0.41% and the S&P 500 was down 0.11%. Brookfield outperformed the major North American indices. In this article, I will explore some reasons why that happened.

Value outperforms

One reason why Brookfield outperformed yesterday is because it was a good day for value stocks in general. The value-heavy Dow Jones Industrial Average and TSX Composite Index beat the S&P 500 – the former rising 0.12% and the latter going up 0.15%. Stocks tend to move in tandem with similar stocks, and with Monday having been a pretty good day for cheap financial stocks, it’s not surprising that Brookfield would book a decent gain.

Interest rate cuts expected

Another factor that may have lifted Brookfield on Monday was the expectation of interest rate cuts. Although Brookfield is a Canadian company, most of its investments and debts are in the United States. It borrows money primarily in U.S. dollars. One of the reasons why Brookfield stock sold off in 2022 was because interest rates were rising, and BN was sitting on a large amount of variable rate debt. When interest rates go up, the interest expense on variable rate debt goes up too. This factor hurt Brookfield’s earnings as well as its stock price in 2022 and 2023. Now, however, inflation in the U.S. is trending lower, and many people think that the Fed will cut rates. Just last week, in fact, the Fed’s most notorious Hawk, Neel Kashiri, said he saw two interest rates cuts coming. Earlier, Chair Jerome Powell said that he expected three cuts totalling 75 basis points. Treasuries have already made gains on the expectation of these cuts, so we might see Brookfield’s interest expenses decline next quarter.

Good fundraising results

A final reason why Brookfield has been doing well lately is because its funds have been raising a lot of money. In December, the company raised $28 billion for a closed-end fund. It set a target for $150 billion in funds raised in the next year. The more such funds Brookfield raises, the larger its fee income. So, investors may be buying Brookfield on the expectation that Brookfield Asset Management’s fee income will rise, and that 75% of it will be passed on to Brookfield Corp.

Foolish takeaway

The year 2024 has been a good one for Brookfield so far. After raising billions of dollars in 2023, the company is now ready to put the funds to work and make some money for clients and investors alike. True, Brookfield has a lot of debt and is sensitive to interest rates. It could suffer some turbulence if rates stay high. But with inflation now trending downward in both the U.S. and Canada, the company has a favourable macro environment in which to operate. On the whole, I’m expecting good things from Brookfield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Brookfield. The Motley Fool recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how a historical investment in TSX dividend stocks would have fared.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $100 Every Month

Want to earn an extra $100 per month in investment passive income? Here's how much cash you would need to…

Read more »

Canadian Dollars
Dividend Stocks

Buy 1,430 Shares of This Super Dividend Stock for $1,000/Year in Passive Income

Here's how to generate $1,000 in annual passive income with Dream Industrial REIT (TSX:DIR.UN) stock.

Read more »

A worker gives a business presentation.
Dividend Stocks

Ranking Inflation Rates in Canada: How Does Your City Stack Up?

Inflation rates stoked higher for some cities, but dropped for others. So let's look at how your city stacked up,…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

Inflation Is Up (Again): What Investors Need to Know

Inflation ticked higher in Canada this month, but core inflation was lower. Here's how investors can take advantage during this…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Want to Make $10,000 in Passive Income This Year? Invest $103,000 in These 3 Ultra-High-Yield Dividend Stocks

Can you earn $10,000 in passive income in 2024? You can by investing $103,000 in these ultra-high-yielding stocks.

Read more »

Payday ringed on a calendar
Dividend Stocks

1 Under-$50 Dividend Stock to Buy for Monthly Passive Income

First National Financial (TSX:FN) is a high-yield monthly-pay dividend stock.

Read more »

Increasing yield
Dividend Stocks

Income Investors: Don’t Miss These High-Yield Deals

These great Canadian dividend stocks now offer high yields.

Read more »