The great rotation

Mar 05, 2021 | Elinesky Schuett Private Wealth Management


Hands typing on a laptop. There is a graph overlaid on the image.

In our featured economic commentary this week, we discuss the great rotation that is taking place as a result of the ongoing volatility in the bond markets, likely testing investor patience and conviction for a while longer. 

Next week we will be celebrating International Women’s Day – Will you be joining us for our event on March 10? We’ve included your RSVP reminder below, along with links to two other interesting women-focused articles: Women entrepreneurs: Making a difference through leadership and innovation and COVID further clouded the outlook for Canadian women at risk of disruption.

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

Your economic update

The narrative in the global markets hasn’t changed much over the past few weeks. The volatility in bond markets, caused by growing inflation concerns, continues to be the central issue of focus for investors and has led to some weaker equity market performance. More noteworthy has been the strong rotation out of certain sectors and groups of stocks and into others. We explain this phenomenon a bit more below, and provide a brief update on the virus.

Coronavirus update

New daily infection trends across North America were somewhat mixed over the past week. Canada’s seven-day average rate of new daily infections stands at 2,900, roughly where it has been over the past few weeks. Overall, the meaningful rate of improvement witnessed over the past month has stalled. From a provincial perspective, Manitoba has witnessed the most improvement recently, while the East Coast has been mixed – Slowing infections in Newfoundland and New Brunswick are helping to offset higher new case levels in Prince Edward Island and Nova Scotia. There is also encouraging news coming out of the U.S. as the seven-day average rate of new daily infections has dropped over the past week, with levels just under 60,000 versus the 70,000 from a week ago.

The great rotation

Global equities have struggled to reach new highs over the past month. They have been weaker, driven by rising inflation concerns that have unleashed bond market volatility. The recent market weakness has been relatively tame as far as pullbacks go, and can be characterized by a meaningful rotation out of “growth” stocks that appeared to be on a never-ending run through recent years. Investors have instead been favouring some of the forgotten, less heralded, and in some cases unloved parts of the market that have been relatively “cheap” for some time, such as energy, base metals, financials, and even some pockets of retail and leisure.

This great rotation makes sense. After all, businesses such as restaurants, hotels, and stores should arguably benefit the most from an economy that may finally be able to reopen. Meanwhile, commodity prices have already rebounded and the potential for a normalizing global economy as the year goes on should help foster a demand recovery. Global banks may see a better operating environment too, fuelled by strengthening activity and improving lending margins as a result of higher bond yields.

On the flip side, so-called “growth” stocks have been under notable pressure. This group is far ranging, encompassing everything from technology businesses, internet-based and e-commerce companies, and virtually anything tied to climate and clean energy, among other things. While the growth outlook has likely not changed for these businesses, there is an appreciation that the potential rate of change and upside to earnings expectations will be demonstrably higher for the other sectors, at least while the economy is reopening. Furthermore, many growth stocks have done well in recent years, with their prices reflecting the attractive earnings growth that investors anticipate.

Another important, and sometimes underappreciated factor with high growth stocks is their correlation to interest rates. They are arguably more sensitive to interest rates than other areas of the global equity market. This is largely a function of two issues. First, stocks are traditionally valued by projecting all future cash flows and discounting them back to a current value using what’s called a “discount rate” that is dependent on the level of interest rates. A higher interest rate would result in a lower present value of future cash flows, all else being equal, and vice versa. The second issue is that high growth companies, by nature, have more of their value tied to cash flows that are expected to be generated years into the future. The further out those cash flows are, the more sensitive they are to interest rates. While varying levels of rates don’t necessarily change the earnings growth that a company will deliver in the years to come, they do heavily influence the present value that investors will ascribe to those future earnings.

We continue to think it remains premature to be concerned with longer-term inflationary pressures that could force central banks to raise interest rates. Nevertheless, we are mindful that near-term inflation readings are likely to tick higher, reflecting an economy that is reopening relative to one that was nearly shut in the same period last year. Higher yields and concerns over inflation could remain a headwind for a while longer. And so, the great rotation may continue, with the potential that it over extends itself as markets often do, testing the conviction level of investors.

Women entrepreneurs: Making a difference through leadership and innovation

Purple banner with RBC Lioness logo. Outline of a woman's head with the text

Women entrepreneurs are powerful, brilliant and resolved to build and grow successful businesses that drive Canada’s economy and better their communities. Discover the stories of some of the country’s most impactful businesswomen and get inspired by their entrepreneurial journeys.

Watch the videos and listen to the podcasts online:Women Entrepreneurs


Join us to celebrate International Women’s Day

Wednesday, March 10, 2021 - 1:00 - 2:30 p.m. via WebEx

Are you joining us to celebrate International Women's Day on Wednesday, March 10, from 1 p.m. - 2:30 p.m.? Don’t forget to RSVP using the link below!

We are excited to be joined by Shakiba Shayani, President & CEO, Guelph Chamber of Commerce, Suzanne Bone, CEO, The Foundation of Guelph General Hospital, and Kate Drummond, Canadian Actor, Public Speaker, Former School Teacher.

These three extraordinary women will be sharing their personal and professional journey, and how gender-equality has played a role in their lives.




Business woman

Business woman

Business woman

Shakiba Shayani
President & CEO, Guelph Chamber of Commerce

Suzanne Bone
CEO, The Foundation of Guelph General Hospital

Kate Drummond
Canadian Actor, Public Speaker, Former School Teacher

Visit our website to read the biographies of these three exceptional women!
International Women’s Day 2021

Kindly RSVP by Monday, March 8


COVID further clouded the outlook for Canadian women at risk of disruption

Almost half a million Canadian women who lost their jobs during the pandemic hadn’t returned to work as of January. More than 200,000 had slipped into the ranks of the long-term unemployed, a threefold increase over last year.

Widespread vaccinations will bring back many service jobs. But firms have repositioned themselves to require fewer workers. And the year-long pandemic may have cemented new consumer habits around online shopping, at-home workouts and other digitally enabled activities.

You can read the full report online: COVID Further Clouded the Outlook for Canadian Women at Risk of Disruption


Protect Yourself from Social Media Scams

The rapid growth in popularity of social media sites, such as Facebook, Instagram or Twitter, has created more opportunities for cyber criminals, who use messaging functions to identify and contact possible victims.

Here are a few things you can do to protect yourself:

  • Be careful what you share on social media sites. Information such as your work or business email, home address, or personal details can be used by criminals to target you for fraud.
  • Be wary of “instant friends” on social media. On many social media sites, once you agree to “friend” someone, you are sharing all of your information with them.
  • Check your privacy setting on each social media site to ensure that you are only sharing information that you are comfortable sharing in public.

Please visit RBC’s cyber security page for more information: Protect Yourself from Social Media Scams

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