The Bank of Canada (BoC) and now the U.S. Federal Reserve (the Fed, as they’re referred to south of the border) have both kept trimming away at interest rates in recent months. With the Bank of Canada cutting rates by 25 basis points (bps) once again at the end of October, many investors might be wondering which stocks are worth picking up now that rates are on the descent with the potential to move even lower in the new year.
Undoubtedly, inflation (especially on food and shelter) has stayed quite hot, but with less-than-ideal job growth, tougher sledding for the Canadian economy, and the headline inflation number nearing 2%, there might be even more room for the BoC to keep the rate cuts coming. And that’s welcome news for stock investors, especially those with more than their fair share of exposure to the small- and mid-cap companies, which tend to benefit more greatly from lower rates.
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Where will rates go from here?
Add the potential relief for capex-heavy firms and those with considerable debt loads into the equation, and I’m sure every BoC rate cut will be cheered. For now, it looks like the BoC is leaning more towards a pause from here. Of course, we’ll have to get the new pieces of economic data before it makes sense to make the next move. Personally, I think there’s upside if this pause turns into more cuts at some point in the next year.
At the end of the day, rate cut decisions should be data-driven. If the Fed does cut by 25 bps this December, I think there’s a stronger case for the BoC to follow suit, rather than pause for all too long a duration. While the Fed still has more room to cut, I’d argue that the tougher economic situation in Canada might warrant even more cuts from here.
In any case, if you believe there are more rate cuts to come, I think the mid-cap stocks look like prime buying opportunities. The mid-caps are larger and somewhat less turbulent than the small-caps, and could be worthy of a spot in your portfolio for 2026.
The TSX completion looks attractive as mid-cap stocks benefit from lower rates
For investors seeking simplicity, I think iShares S&P/TSX Completion ETF (TSX: XMD) is a good choice, especially after the latest bounce. With shares surging more than 6% in the past week (as of U.S. Thanksgiving Day), I do see the potential for the incredible, market-beating past-year run to continue. With a nice 1.22% dividend yield and a reasonable 20.4 times trailing price-to-earnings (P/E) multiple, I am a fan of what you’ll get from the intriguing ETF that can help balance the likes of a cap-weighted TSX Index ETF.
Shares are up close to 35%, topping the TSX Index by a wide margin. For those unfamiliar with the ETF, the “completion” moniker comes from the fact that the ETF pretty much “completes” the TSX 60 by investing in some of the largest (a lot of mid-cap stocks, though there are large-caps as well) names outside of the TSX 60 index.
What’s underneath the hood? Some fantastic companies, including mid-cap miners (there are a lot of miners), as well as smaller, lesser-known financials and industrials. I’m a huge fan of the ETF and think it does act as a missing piece of the puzzle, so to speak, for investors in the broad TSX 60.
