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It's hard to say what 2024 will bring for UK stocks. A recession seems imminent, but there is a chance this could cause the Bank of England to start cutting interest rates to stimulate the economy.
The situation is undeniably complicated and I think it depends largely on what happens in the United States. But there are some stocks on my radar that could really benefit from an interest rate cut.
Barclays
Overall, rising interest rates have been a mixed blessing for the UK banking sector. But I think Barclays (LSE:BARC) will benefit more than most if rates fall in 2024.
In general, banks have faced greater risks of borrowers defaulting on their loans as interest rates have risen. But Barclays also has an investment banking division, which has been severely damaged.
Therefore, a drop in interest rates should provide a double boost for the company. In addition to helping with bad debts, it should boost investment banking activity.
Lower rates could lead to lower spreads, which is a risk for investors buying stocks today. But I think its diversified operations make this less of a danger for Barclays than its peers.
The PRS REIT
Another stock I've been looking at for some time is The PRS REIT (LSE:PRSR). The company is a real estate investment trust (REIT) that focuses on new homes.
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Like many REITs, PRS has a considerable amount of debt, which poses a significant risk. When the time comes, the company could face the prospect of having to pay more interest in the future.
However, a drop in interest rates would be very helpful in this regard. It would also go some way to increasing the market value of the company's asset portfolio.
The past year has been a strange one in the housing market: a drop in demand has been partially offset by a corresponding drop in supply. As a result, house prices have not fallen as much as I expected.
However, I think PRS REIT is a company that could really benefit from the Bank of England starting to cut interest rates. If that happens in 2024, I would expect the company's share price to react positively.
winners 2024
As Warren Buffett says, interest rates are the gravity that keeps asset prices low. Therefore, a rate cut in 2024 should benefit stocks across the board, at least to some extent.
Despite this, I think some will benefit more than others. And the companies that catch my eye fall into one of two categories.
Firstly, there are those who will benefit from rising asset prices in their trading operations. This is the case of Barclays in its investment banking division.
Second, there are those who have existing debts that would have had to be refinanced at higher rates. This is typical of REITs across the board, including PRS REIT.
