A lot of investors tune into the Bank of Canada rate decision. And while the meetings are worth paying attention to, I find that it makes less sense to react, especially if there’s no move made (like an interest rate hike or cut), and the wait-and-see, data-driven approach continues to be the path forward.
For the most part, investors should focus on value and think about the horizon that’d make near-term rate decisions less of a make-or-break. Of course, it’d be nice for stocks to get a bit of a rate cut, but given where inflation’s at and where it could go next, perhaps holding off or even a hike could be the move.
In my view, it really doesn’t matter for true long-term thinkers looking to build wealth through the decades. With an Iran-U.S. peace deal that’s reportedly “all signed,” questions linger as to what oil’s next move could be and if it’ll reduce the rate hike risks in Canada for the second half of the year.
Governor Tiff Macklem; Source: Bank of Canada
Rates are important, but they shouldn’t drive your portfolio
Given the sluggish employment picture on this side of the border, as well as the potential for oil to continue its slide as the Strait of Hormuz finally looks to get back up and running again, I do think that the next Bank of Canada decision will be another pause.
Until there’s conclusive data that builds up, perhaps having Tiff Macklem, the Governor of the Bank of Canada, sit on his hands might be what’s up ahead. Either way, I think there’s room for a rate cut, maybe two, especially if inflation doesn’t back down. Hike or hold, I think the following stock is a great buy, especially if rate stability ends up being the theme for the rest of the year.
In terms of what to buy before the next key decision, which is probably going to be another “hold,” given the latest dip in oil prices and newfound pressure on the Canadian economy, I do think that the Bank of Montreal (TSX: BMO) could stand tall.
Bank of Montreal
Bank of Montreal stock isn’t so much a great buy ahead of the next Bank of Canada decision as it is a fantastic name to “average up” into on strength amid the great bull market in the Big Six Canadian banks. In any case, another lack of action (rate pause) could probably mean more of the same for the big banks that have been posting huge wins of late. Rate stability is great for the banks, especially for the likes of BMO, which has been posting some incredible numbers of late.
Sure, the broad banks have all been heavy gainers, but BMO is one of the names that could pull further ahead of the pack. With a 2.9% dividend yield and a modest, but certainly not cheap 18.1 times trailing price-to-earnings (P/E) multiple, BMO stands out as a great name that could continue defying the laws of gravity as earnings per share continue to do the talking.
In short, BMO might not be a steal or a dividend heavyweight anymore, but it’s a premier bank that’s operating at a level high level in a macro environment that’s highly favourable. That warrants a premium price tag, at least in my view. Whether it’s rates or the performance of the big banks, expect more of the same.
