There were some welcome developments this week. More specifically, the Canadian banks reported results that allowed investors to breathe a collective sigh of relief. Beyond the banks, equity markets rallied further, but it was the inner workings of the move that was particularly noteworthy. We explain more below, and begin with an update on the status of the pandemic.

Coronavirus update

It has been roughly five months since the emergence of the coronavirus. Its global spread continued this week with Latin America in particular struggling to slow its proliferation. The number of reported daily new cases in some countries such as Brazil, Chile, Mexico, and Peru is a reminder that the situation remains serious. But elsewhere, the progress witnessed over the past month in Canada, the U.S., and Europe largely continued this week. New cases are slowly grinding lower in Ontario and Quebec if you look at the figures smoothed out over a few days. There have been sporadic clusters of outbreaks this week in Seoul (South Korea) and even within our own borders in New Brunswick. Certain states in the U.S. have shown increases in new daily case counts, as we have grown accustomed to seeing. But, there have not been any signs of more meaningful acceleration in new daily case counts despite the staged reopening of economies over the past few weeks.

Big week for Canadian banks

Sentiment with respect to the Canadian banks had been very poor heading into the week. Investors struggled to understand the degree to which the sector would have to prepare, or provision as it is often called in investment terms, for future loan losses. Fortunately, the results reported by the banks were generally fine. To be clear, profits were down substantially. And provisions did increase exponentially with banks setting aside billions of dollars to prepare for bankruptcies and defaults. But the amounts set aside were generally lower than what some investors had expected, which provided some reassurance that perhaps the environment may not yet be as bad as some had feared. This may help explain why the sector was one of the strongest performers this week. Nevertheless, it is important to remain vigilant. The risk remains that the banks may have to increase their provisions even more than expected in the future should the economic damage be longer lasting. It is impossible to know. But, we remain comforted by their generally strong balance sheets and ability to pay sustainable dividends.

A rally with more participants

It feels comforting when markets are moving higher. But, not all market rallies are the same. Beneath the surface, there can be some that are driven by just a handful of the largest stocks and others that are driven by many smaller ones. One complaint about this recovery has been that a good portion of it has been led by large technology and other so called “growth” stocks, who increasingly make up a large part of many regional stock markets. But, within the past few weeks, that trend has been changing with other segments of the market driving a bigger part of the overall stock market gains. We view this as a healthy sign that reflects growing confidence in the economic recovery that is now underway.

Investors and policymakers will undoubtedly be watching the economic progress very closely over the next month. The significant income support programs implemented by the Canadian and U.S. governments more than a month ago are set to begin to expire in July. The hope is that enough workers will have been rehired by then to alleviate pressure on governments to do more. The degree and sustainability of the recovery, the geopolitical tensions between China and the U.S., and the pandemic remain risks that we will continue to monitor with great interest.

10-Minute Take

There are two new 10-Minute Take podcasts available on our website.

How Maslow’s Hierarchy can explain pandemic spending

The start of the COVID crisis might forever be associated with a toilet paper shortage as people went into survival mode and stocked up on staples. Or, in the language of Maslow’s Hierarchy, people were just trying to meet their basic physiological and safety needs. But as we move up the pyramid and beyond the crisis, where (and how) we spend our money will be different from before. How will retailers adapt? And what are people buying to reach self-actualization? Irene Nattel, RBC Capital Markets’ Consumer Discretionary & Staples Analyst, shares how the crisis is changing consumer trends.

How COVID is heralding a new era in healthcare

Before the pandemic, the challenges plaguing U.S. healthcare seemed insurmountable. Think onerous regulations, outdated processes, and high prices. But the dark clouds of the crisis are bringing silver linings – less red tape, virtual access to doctors, and long-awaited innovation. How are healthcare providers adapting? And what role will Big Tech play? Kennen MacKay, RBC Capital Markets’ Co-Head of Biotechnology Research, shares how changes in the U.S. healthcare sector are here to stay.

You can listen to these 10-Minute Take podcasts online now: The 10-Minute Take.

Thought Leadership: 8 Ways COVID Will Transform the Economy and Disrupt Every Business – John Stackhouse

If there is one lesson from the pandemic of 2020, it may be this: We are biological beings in a digital age. “…we’re emerging from this crisis with an even greater desire to harness smart technologies, new forms of intelligence and vast pools of data to transform pretty much everything we do. COVID did not crush the future. It merely brought it forward.”

You can read the latest Though Leadership article by John Stackhouse online.

COVID-19 refinements

RBC GAM Chief Economist Eric Lascelles says that the pandemic’s grip remains strong, particularly in certain areas of the globe. The economy, however, is starting to show signs of making its way back from the depths. Negative rates look to be unlikely in the US, UK, and Canada.

 

You can watch the video featuring Eric Lascelles online: COVID-19 refinements
Watch time: 11 minutes 08 seconds

 

Community Corner

Each week, we like to end our posts with a few good news stories from in and around the community. We hope that they brighten your day!

• Children’s Foundation of Guelph and Wellington Online Fundraiser: Encore virtual concert will raise funds for food for children
• Dewar: local paramedics doing a ‘fantastic job’ in challenging conditions
• Dad's unbelievable trick shot videos are a welcome pandemic distraction
• Salt painting, shirley temples and more tips to keep kids happy at home

Happy Birthday at Home

Celebrating a birthday at home during this period of physical distancing is a very different experience for many. In recent weeks, there have been news stories published in our local papers about community parades helping to celebrate birthdays, but we thought we share a personal birthday parade story this week.

One of our team members and her family lives in Guelph Eramosa, where the local volunteer fire department is helping the community celebrate birthdays by organizing a fire truck birthday parade. Our team member’s young boy had a birthday surprise that brought a huge smile to his face – Full lights and sirens from two shiny red fire trucks and a birthday song sung by the local fire fighters!

 

Although he wasn’t able to celebrate with his extended family and school friends, this newly minted five-year-old had a birthday he won’t soon forget!

 

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.