Elevated investor sentiment

Feb 05, 2021 | Elinesky Schuett Private Wealth Management


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This week, we discuss the rise of the “SPAC” and the elevated levels of investor sentiment that will require some vigilance going forward in our featured economic commentary. We’ve also included the most recent video from Eric Lascelles, Chief Economist with RBC Global Asset Management, where he provides his thoughts the recent vaccine developments as well as the strength in the manufacturing sector.

This week’s blog post also includes a few other interesting articles and resources:

  • 2020 Tax preparation reminders
  • Recognizing the early signs of dementia
  • Five Ways to Support Your Employees’ Mental Well-being

Don’t forget to RSVP for the upcoming event, Mental health and resiliency in a time of change, featuring RBC Olympian Tyler McGregor, on February 17 at 1 p.m. Event details and your RSVP link are below.

As always, we end our weekly blog post with a few good news stories from in and around our community.


Your economic update

The past week was highlighted by a meaningful decline in volatility, as investors shifted their attention back to fundamental factors – COVID-19, the economic backdrop, monetary and fiscal policy, and corporate earnings. Trends on this front are either headed in the right direction, or remain very supportive and reinforces our constructive stance on global equities this year. It’s a view that appears to be shared by many investors. While it’s not necessarily troublesome, we have become mindful of the rising levels of positive investor sentiment and we believe that it requires some increased vigilance going forward.

Coronavirus update

The progress made on the pandemic front as of late continued this past week, including the notable improvement in North America. In Canada, the seven-day average rate of new daily infections fell to just under 4,000 versus the 5,100 from a week ago, with declines noted across the country. In the U.S., the seven-day average rate of new daily cases fell close to 120,000 versus the 150,000 from a week ago, with signs of broad-based improvement as well. Meanwhile, there continues to be positive news with respect to vaccines. Johnson & Johnson released favourable results on its vaccine candidate, while Russia’s Sputnik V vaccine also demonstrated positive efficacy data.

Elevated sentiment

The epic “short squeeze”, driven by the online coordination among retail investors that impacted a handful of stocks, appears to have settled down over the past week. Nevertheless, it brings to light the abundance of money around the world looking for investment returns that could lead to increased risk taking behaviour over time.

Global central banks were understandably applauded for their decisive actions taken relatively early in the pandemic. Governments around the world soon followed with a string of bold measures aimed at helping businesses and households. One of the consequences of these efforts has been the creation of excess capital in the form of cash, savings, and cheap loans. Given the current stage of the pandemic and economic cycle, central banks and governments appear unlikely to curtail their policies any time soon. In other words, this additional liquidity may likely persist for a while longer.

The growth in money supply has invariably found its way into the capital markets. The large increase in retail investing, particularly through online trading platforms, suggests as much. Moreover, various popular ratios measuring the number of investors anticipating stock increases relative to those anticipating declines sit near all-time highs, indicative of very positive investor sentiment. Global equity market valuations are above average, but not necessarily extreme, particularly when compared to bond markets. Nevertheless, there are some areas within the global stock markets that appear to be a lot more expensive than others, driven by strong investor interest through the past year.

The excess capital appears to be driving an insatiable demand for virtually any global asset that can earn some kind of return. Most striking of all has been the “IPO” market. It was incredibly strong last year and appears even stronger year-to-date. An IPO, in which private companies become public, typically involves a lengthy process whereby a company discloses information about its business operations, its historical financial statements, and attempts to gage interest from investors before issuing new shares in what’s called an initial public offering. Last year saw the rise of the “SPAC” IPO. A SPAC, or special purpose acquisition company, is a shell company with no operations. It is formed relatively quickly and is backed by investors for the sole purpose of finding a private company to acquire. While the structure is not new, nor is it necessarily problematic, the dramatic increase in new SPACs illustrates the kind of euphoria that is being generated in some parts of the market. Many of these businesses may indeed go on to be very successful public companies over time, but we believe there will inevitably be others that struggle to fulfil the lofty expectations placed on them.

There are undoubtedly some signs of excess that have surfaced across parts of the global capital markets, yet we recognize that government and central bank policies are likely to remain very supportive for equity markets this year. Furthermore, we continue to look forward to an upswing in the global economic cycle that we expect will provide a powerful tailwind to corporate earnings. The key will be whether those earnings can surpass investor expectations. We have become more vigilant given some of these issues, but still maintain a constructive outlook going forward.

Falling infections and new vaccines

This week, Chief Economist Eric Lascelles discusses positive vaccine developments and declining infection rates in certain regions of the globe. He also touches on economic surprises against earlier forecasts, including particular strength in the manufacturing sector.

A laptop on a desk with a man on the screen (head and shoulders). The office background is blurred and the text overlay reads: RBC Global Asset Management. Falling Infections and new vaccines. #MacroMemo with Eric Lascelles.

Watch the video online: Falling infections and new vaccines


2020 Tax preparation reminders

A close-up picture of receipts, notebook, and calculator on a tabletop. There is a hand holding a pencil above one of the receipts. With the 2020 personal income tax return filing deadline fast approaching, this is a great time to see if you’re taking advantage of all of the tax benefits you may be entitled to. The following information outlines items you may want to consider when preparing your 2020 personal income tax return.

Download the full article here: 2020 Tax preparation reminders

Recognizing the early signs of dementia

Senior woman with her hands clasped in front of her mouth.

It can be hard to spot the early signs of dementia versus normal age-related memory loss. If dementia is diagnosed, there are steps caregivers can take to help support loved ones.

People who lose their keys or forget names often dismiss these temporary memory lapses as having a “senior's moment.” However, persistent memory loss can be a sign of a more serious cognitive issue known as dementia.

People need to determine if their forgetfulness or thinking problems are due to dementia or other illnesses, such as anxiety or depression, or side effects of certain medications. Some people who experience hearing loss may also be mistaken as being forgetful when, in reality, they have trouble hearing information and therefore, have more issues understanding and communicating effectively with others.

Read the full article here: Recognizing the early signs of dementia

 

Workplace Stress During COVID-19: Five Ways to Support Your Employees’ Mental Well-being

Taking care of your mental well-being is essential to staying healthy, staying resilient and moving your business forward. The article Business Owner Burnout: Seven Self-Care Tips During Stressful Times offers some practical ways to maintain your mental health. At the same time, it’s important to take steps to support your employees and their personal well-being. Whether you run a small office, a bakery, a lawn care company or a body shop, our tips can guide you through ways to help your employees avoid burn out, manage their anxiety levels and cope with the other stressors they may be facing.

Read the full article online: Workplace Stress During COVID-19: Five Ways to Support Your Employees’ Mental Well-being

Elinesky Schuett Speaker Series:
Mental health and resiliency in a time of change, featuring RBC Olympian Tyler McGregor 

Wednesday, February 17 - 1:00 p.m. - 2:00 p.m.

Please join us on Wednesday, February 17 for a discussion about mental health and resiliency. We are excited to be joined by Charmaine Collins from the "How are you, really?" campaign, Cyndy Moffat Forsyth, Director, Integrated Youth Services Network, and RBC Olympian, Tyler McGregor.

Kindly RSVP by Monday, February 15.

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If you’d like to learn more about our guest speakers, you can read their biographies on our website: Mental health and resiliency in a time of change.

 

Community Corner

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

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.