

Major Stock Market Drops in 2024 are explained, up to now, by the rise in interest rates, with companies more dependent on credit and more leveraged.
So far, this year has not been very positive for the Ibovespa, which is down more than 8.5% year-to-date.
The prospect of a delay in the beginning of the interest rate cut cycle in the United States (at least compared to what was expected by the end of 2023) and fiscal problems in Brazil, mainly, have been driving investors away from the stock market. But some stocks stand out among the lows, plummeting more than 40%.
In the top five of drops in the main index of the Brazilian Stock Market, until the closing of Wednesday (this Tuesday (28)), were companies such as Cogna (COGN3), Magazine Luiza (MGLU3), CVC (CVCB3), Yduqs (YDUQ3) and Azul (AZUL4). The declines are, respectively, 45.5%, 43.7%, 43.4%, 42.8%, and 42%.
In common, all of them are strongly influenced by interest rates, as futures contracts (DIs) have risen again under pressure from the US scenario and influenced by the Brazilian fiscal issue.
These companies are highly exposed to interest rates. On the revenue side, it impacts consumption, due to more expensive credit. On the balance sheet, it impacts financial expenses, which become higher, increasing debt costs.
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Cogna and Yduqs, companies in the education sector that appear on the list, for example, end up having more expensive student credit lines, which limits new enrollments.
Furthermore, higher interest rates also tend to impact the economy, slowing it down, which reduces people’s appetite for “learning” expenses.
According to an analyst, on the macroeconomic side, the scenario of cash burn in companies in the sector, combined with high interest rates, has further pressured the financial performance of these companies and increased default rates.
The education sector is also historically known to be capital intensive and with high competition.
Therefore, the demand required by the education sector, in a high-interest environment, increases the cost of capital and reduces profitability.
In addition, the rise in competition is a significant factor, especially in distance learning, where many courses are offered at low prices.
If that weren’t enough, the recent results of both, both in the fourth quarter of 2023 and the first quarter of 2024, were poorly received by the market.
Meanwhile, CVC and Azul also enter a similar package – of problems. Both companies, linked to the travel sector, suffer from higher interest rates, which reduce demand from more customers. Besides that, they are also high-cost operational and leveraged companies.
Both the tourism company and the airline are in the midst of restructuring processes.
The former announced a new CEO last year, changed its capital structure, and has been focusing on digitizing its business. The latter renegotiated debts and leasing contracts.
However, debts remain high. In addition, the costs of these companies, with a higher dollar and rising oil prices, have also increased, reducing margins. All of this has led to increased leverage.
Finally, the drop in Magazine Luiza – which leads the losses of retailers (Casas Bahia follows closely, with a 37.5% retraction in 2024) – is also explained by reasons that go in the same direction as Cogna, CVC, Yduqs, and Azul (AZUL4).
On the revenue side, higher interest rates inhibit consumption and decrease revenues. On the spending side, debt remains expensive.
Despite bringing operational advances in its recent results, the change in perception, that Brazilian interest rates may remain in the double digits until the end of the year, has dampened market sentiment.
According to an analyst, the new forecast “slows expectations and makes the scenario less favorable for durable goods.” And this directly affects Magalu.