Shares of Toronto-Dominion Bank (TSX:TD) have started 2024 on a bearish note. TD stock has witnessed a decline of nearly 5.6% in January so far, continuing a downward trend from the past two years when it lost 12% of its value. Currently trading at $80.80 per share with a market capitalization of $145.7 billion, it still holds its ground as the second-largest Canadian bank in terms of market cap.
But is now the right time to invest in TD Bank stock, especially given its recent performance and expected interest rate cuts in 2024? While there is no easy answer to that question, let’s take a closer look at some key fundamental factors that could drive its share prices in 2024 by analyzing TD Bank’s financial growth trends and the potential impacts of expected changes in the economy.
A recent recovery in TD Bank stock
To understand TD Bank’s current position, it’s important to look at the broader market context. In 2023, the Canadian stock market experienced a notable rebound, rising by 8.1% after an 8.7% decline in the previous year. After rapidly increasing interest rates in the previous one and a half years, the central banks in the United States and Canada, amid early signs of easing inflationary pressures in late 2023, gave indications that they might soon start easing their monetary stance.
The expectations that central banks would slash interest rates in 2024 led to a sharp, broader market recovery in the final quarter of the calendar year 2023. Investors hope that lower interest rates can stimulate economic activities and boost consumer and corporate lending, which could ultimately benefit banks like TD Bank. This could be the primary reason why TD stock rallied by 11% in November and December 2023 combined.
But will lower interest rates really help TD Bank?
Clearly, rate cut expectations triggered a rally in TD Bank stock in late 2023. But we shouldn’t forget that the anticipation of lower interest rates could be like a double-edged sword for banks. On the one hand, it can squeeze the net interest margin, which acts as a key income source for banks. On the other hand, it may lead to an increase in loan volumes, as lower borrowing costs encourage both consumers and businesses to take on more debt.
For TD Bank, with its strong presence in both the retail and commercial banking segments, the potential rise in lending activity could be a significant growth driver. In addition, a rebounding market with lower interest rates might increase the growth in its other segments, such as wealth management, capital markets, and mortgage refinancing, which could potentially offset any margin pressures.
Is TD Bank stock a buy now?
Despite its recent bearish trend, TD Bank’s decades-long track record of easily adapting to changing economic conditions makes TD stock stand out in 2024. In its fiscal year 2023 (ended in October), the bank’s adjusted earnings fell 4.3% year over year to $8 per share. On the positive side, its total revenue rose 12.3% from a year ago to $51.8 billion.
While continued macroeconomic uncertainties might keep TD stock volatile in the near term, any dip in short-term downside correction in its share prices this year could be an opportunity for long-term investors to buy this reliable large-cap stock at a big bargain. At the current market price, TD Bank offers a 5% annualized dividend yield and distributes its dividends every quarter.
