As we enter the first couple of weeks of July it has been so refreshing to have the warm weather. Summer is officially here! Kieron is happy he is able to get out of the house and play golf and Taryn is happy her kids can go to camp. While we all continue to navigate COVID-19 we were very pleased that almost the whole team was able to get together recently and see each other. It may only be a short time now before the majority of us are back in the office together.

With restrictions easing in many places, some people are keen to start to travel again. The Lonely Planet has written an article that takes a look at how Europe has launched a digital Covid-19 certificate. This permit will be required to travel across the EU. If you're not quite ready for international travel, Canada's tourism industry is showing signs of life as domestic demand could spark a revival of tourism activity ahead of border re-opening. Predictions are showing that the Canadian tourism sector is primed for an early recovery after a bleak year. Zita Cobb recently had a conversation with John Stackhouse & Naomi Powell about the digital age and why the pandemic has made the world seem more like a zero sum game. Travel post-pandemic is going to look much different and Cobb suggests that it will be more community based. That full article is here.

Market & Economic Update

Market developments may not be top of mind these days. After all, the economy is finally reopening and summer is now officially upon us. We take the opportunity below to reflect on the current backdrop and market narrative which we expect to persist into the back half of 2021. There are risks that need to be acknowledged, but the outlook remains constructive.

As the global economy continues to recover in 2021, there are a number of catalysts for investment portfolios that will be important to keep top of mind throughout the rest of the year. Based on the views from our on-the-ground analysts and strategists around the world, this special 2021 Midyear Outlook provides RBC Wealth Management’s insights on the economy, equity and fixed income markets, currencies, and commodities. Some key takeaways from the report are below:

• Green light for economy and markets. As we enter the second half of 2021, all signs point to a continued economic improvement and no recession in the immediate future. Although a correction is always possible, we don’t view one as inevitable. Our U.S. recession scorecard sits firmly in the green expansion category.

• Don't fear the rate hike. The prospect of the Federal Reserve tightening monetary policy has swung back into view, prompting market volatility and raising concerns about support for the global recovery. History shows us there have been 17 Federal Reserve tightening cycles since 1954, with eight of them producing enough credit tightening to bring on a recession. The median equity market performance over the 12 months leading up to the first Fed rate hike in each cycle was 16.8%, and 9% in the 12 months following the rate hike. This tells us that if the Fed tightening cycle is going to cause trouble for the stock market, that trouble usually arrives a ways down the road from the first rate hike, if it arrives at all. Keep in mind that nine Fed tightening cycles produced no recession or any equity bear market.

Outside the U.S., the growth outlook has more recently started to improve with a reopening of economies in places like Canada and Europe. This should support the consensus view that global earnings will continue to grow at a double digit pace, helping meet market expectations. RBC Economics' COVID Consumer Spending Tracker illustrates the sharp increase in Canadian consumer spending as restrictions ease, especially in the service sectors hardest hit (clothing, food & hospitality).

The potential for sustained inflationary pressure has emerged as a concern this year. It may remain a source of risk until more evidence emerges that clarifies whether pricing pressures are simply being driven by a combination of supply chain bottlenecks and the reopening phenomenon, or factors that are more durable in nature. It will take some time to gain that level of clarity. The RBC economics Inflation Watch has some interesting charts. For a deeper dive listen to the audio commentary: Is Inflation here to stay? by RBC Portfolio Specialists Kelly Bogdanova and Tylar Lunke who discuss the situation and what to expect.

Your Financial Health

We discussed rising housing prices in April's blog, today we are continuing the discussion as the summer market begins to heat up. We have noticed many of our clients are looking into ways to help their children become home owners. Shifting wealth early is becoming a more common discussion as parent's are becoming anxious to help their children afford their first home. This article by The Globe and Mail Wealth shifts to next generation as parents help kids with down payments follows Mississauga parents who have tapped into the equity on their own house to help their children with their down payment on their first home. If you are considering helping your child please feel free to reach out to us, there are important things to consider before transferring the funds such as the difference between a loan and a gift, and if you have decided to gift will this create any estate inequalities between children? It is also important to understand the rules for  the first time home buyer incentives.

Speaking of our children, a recent article from RBC Teaching your kids about financial literacy, broadly looks at some key areas of financial literacy. We have always been advocates of the importance of teaching our children and grandchildren about budgeting, saving and investing from a young age so that they can feel empowered. We are happy to explore any of these topics further and help guide the young adults in your life on their financial journey.

According to the 2019 Canadian Financial Capability Survey, about half (49%) of Canadians have a budget. According to this Facts and Figures article, among Canadians in the “Sandwich Generation” (those looking after children and parents), 27% expect to put their own financial goals on hold to provide support to both their children and their parents. Planning ahead is key, and that's why we are here to help you build and review your financial plan and Net Worth Statement.

 

With the Olympics Games just days away and things looking quite different in the already once postponed international multi-sport event - no spectators, many top athletes choosing to pass this time around due to COVID concerns - we will be cheering on Team Canada and hoping everyone stays healthy and safe. RBC proudly partnered with the Canadian Olympic Committee, and the Canadian Olympic Foundation in 2016 to launch the RBC Training Ground. It's a talent identification and athlete funding program designed to find young athletes with Olympic potential and has allowed thousands of Canadian youth to get one step closer to their Olympic dream.

We hope you all get to enjoy these summer months and stay safe and healthy!