The Bank of Canada slashed the policy interest rate by 25 basis points in the first week of June 2024, marking its first monetary policy easing since March 2020. The market widely expected this major move, as the central bank had signalled its intention to ease monetary conditions in response to gradually easing inflationary pressures.
Overall, lower interest rates are likely to stimulate economic activity by making borrowing cheaper for consumers and businesses alike. This strategic rate cut could set the stage for a hot month on the TSX as long-term investors look to benefit from the expectations of favourable economic conditions. With interest rate and inflation-sensitive sectors like banking and retail expected to gain, it could be the right time to invest in some fundamentally strong TSX stocks from these sectors. Here are two of the best stocks that could offer attractive returns if you buy them in June 2024.
Bank of Montréal stock
Since the Bank of Canada started a series of interest rate hikes in early 2022, most bank stocks have underperformed the TSX Composite benchmark. One of the stocks that has suffered from this trend is Bank of Montréal (TSX:BMO). It’s currently the third-largest Canadian bank by market capitalization (nearly $83.8 billion), as its stock trades at $114.89 per share with roughly 12% year-to-date losses. At this market price, BMO stock offers a 5.3% annualized dividend yield and distributes these dividend payouts every quarter.
In the first half (ended in April) of its fiscal year 2024, the Bank of Montréal’s total revenue slid by 6.5% from a year ago to $15.8 billion due mainly to a decline in its net interest income. In addition, higher provision for credit losses drove its adjusted earnings down by 16.3% YoY (year over year) for these six months to $5.15 per share.
Nevertheless, as the recent cut in interest rates boosts the demand for loans, BMO could see its revenue and earnings growth improving in the second half of fiscal 2024. This is one of the key reasons why I expect BMO stock to recover sharply in the near term, making it a hot TSX stock to buy in June.
Aritzia stock
Aritzia (TSX:ATZ) could be another top TSX stock that could benefit from a lower interest rate environment and easing inflationary pressures. After witnessing 47% value erosion in the previous couple of years, ATZ stock has recovered by 31% so far in 2024 to currently trade at $36.06 per share with a market cap of $4 billion.
In its fiscal year 2024 (ended in February), this Vancouver-headquartered apparel designer and retailer’s YoY revenue growth rate fell to 6.2% from 46.9% in the previous fiscal year. Similarly, inflationary pressures and a challenging consumer spending environment led to a 50.5% YoY drop in its adjusted annual earnings in fiscal 2024 to $0.92 per share.
As consumer spending could regain strength with the help of lower interest rates in the coming quarters, I expect Aritzia’s sales and earnings growth trends to improve in fiscal 2025, which should drive this top TSX stock even higher. Besides that, the Canadian retailer’s consistent focus on expanding its presence in the strategically important United States market boosts its long-term growth prospects.
