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.
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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.
