Strong growth expected

Apr 16, 2021 | Elinesky Schuett Private Wealth Management


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Close-up image of a keyboard. There enter key now says Growth and is red. There is an antique key on top of the growth key.

In our featured economic commentary this week, we discuss the frustrating COVID-19 situation, some early takeaways from the U.S. bank results, and what we expect to monitor as the earnings season unfolds over the next few weeks.

In addition to our economic commentary, we’ve included two recent publications from RBC Global Asset Management, Home Economics: Comparing Canadian real estate to Canadian equities, and Market Update – 2021.

We’re keeping you busy while you’re staying at home! We have two fantastic online events planned this spring:

  • 2021 Global Update: A new investment order, featuring Kurt Reiman
  • Living to 100: Financial planning for longevity

Event details and your RSVP links 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

Volatility was relatively subdued over the past week, helping global equity markets edge higher. The COVID-19 situation remains a near-term headwind, but not enough to dissuade investors from the view that a sustainable growth trajectory is around the corner. Meanwhile, the first quarter earnings season is now underway with companies reporting results amidst relatively high expectations. We explain some early takeaways from the banks and discuss what we’ll be watching as the next few weeks unfold.

Coronavirus update

The past week saw yet another acceleration in the rate of growth of new COVID-19 cases across Canada. The country’s seven-day average rate of new daily infections rose to over 8,500, from 6,400 the week before, representing a new record high. Manitoba led the way, after having enjoyed a few months of relative stability, and the increase has sparked a new round of restrictive measures in the province. Ontario also saw a sharp increase despite the fact it had already recorded rapid growth in infections for well over a month. Quebec, Alberta, BC, and Saskatchewan also saw notable increases though not as severe. The situation in Atlantic Canada and the northern territories remains relatively stable.

The story is similarly frustrating in many other jurisdictions. India reported a record of more than 210,000 new daily cases, surpassing the 130,000 record reported in the prior week. Chile, Japan, Germany, and Turkey are just a few of the other countries facing an accelerating spread at this point. The U.S. has witnessed a rise in its daily trends over recent weeks, but not at the pace of others.

Israel represents the best example of what hopefully lies ahead for most countries. After having witnessed a record high of more than 10,000 new daily cases in late January, it has seen its figures fall below 200 recently, driven by an aggressive and efficient vaccination campaign that has seen more than half of its population of 9 million people receive their vaccine.

Strong growth expected

The first quarter earnings season, measuring business results between the months of January to March, has officially kicked off. Expectations are high, with consensus calling for 25 percent year-over-year growth for companies within the S&P 500 index, the most popular benchmark for the U.S. equity market. Moreover, the earnings growth rate for the second quarter (April to June) is expected to rise by more than 50 percent, reflecting the fact that much of the world’s economy was shuttered in the spring of 2020. For the full year, the average estimate is for nearly 26 percent year-over-year growth. This stands in stark contrast to the decline of almost 13 percent that was witnessed last year.

Many U.S. banks reported results over the past week. Not surprisingly, many are releasing some of their credit provisions, after having built them up significantly nearly a year ago in preparation for loan losses. Meanwhile, revenues across capital markets businesses and wealth management franchises were strong, driven by a positive market backdrop. One source of potential disappointment may have been net interest margins, which measure the difference between interest paid to depositors and interest earned from borrowers. Investors expect this important source of profitability to improve this year, along with the rise in bond yields witnessed year-to-date, however management teams highlighted that any improvement will take time. U.S. consumers are not yet ready to re-leverage, as many have accumulated savings from the significant government stimulus deployed over the past year. These reserves may need to be spent before demand for loans rematerializes and drives an uptick in margins. Overall, the results were in-line with high expectations and served as confirmation that the economic backdrop, at least in the U.S., is improving.

Management teams from a range of sectors will be commenting on their own company results over the next few weeks and we look forward to any insight they can provide with respect to the outlook on costs and inflation. Everything from lumber, to coffee, skilled labour for certain industries, and semiconductor “chips” are all seemingly in short supply. Any sustained supply issues could present cost and profit margin headwinds to companies across a number of industries. It may be premature to be overly concerned at this time, but it is something worth monitoring.


Home Economics:
Comparing Canadian real estate to Canadian equities

Row of detached houses When comparing real estate and equity investments, it’s important to understand the historical growth associated with these different asset classes. A common misconception among many investors is that, historically, real estate has been a better long-term investment than equities. Looking back, however, the data suggests otherwise.

Use this link to read the article online: Home Economics: Comparing Canadian real estate to Canadian equities

Market update – April 2021

Investors embrace the economic rebound

View of skyscrapers close-up and in the distance Global economies are rebounding nicely following last year’s recession and our assessment is that we are at the early stage of a new business cycle. Interest rates remain low, unemployment is elevated but improving, and the economy is being supported by massive fiscal stimulus with potentially more on the horizon. All things considered, we think the economic expansion has further room to run, possibly for several years. The coronavirus remains a key challenge to our outlook, with new variants spreading rapidly and case counts rising in many regions of the world. However, progress on vaccinations should ultimately curb the spread of the virus and the economic hit from COVID-19 is unlikely to be severe given the economy’s impressive resilience during the pandemic. We look for the world’s major economies to grow between four percent and eight percent in real terms in 2021 followed by slightly slower, but still strong, growth rates in 2022.

You can read the full article online: Market update – April 2021

 

Hands holding a tablet pointing at a graph on the screen2021 Global Outlook: A new investment order

Stay in the know! Get latest economic news from a leading industry expert at this online event.

Wednesday, April 28, 2021
1:00 p.m. - 2 p.m.

Online, via WebEx

Please join us for the next online event in the Elinesky Schuett Speaker Series, 2021 Global Outlook: A new investment order, featuring our special guest speaker Kurt Reiman.

Kurt will be sharing his expertise and insight during this special online event, providing an updated 2021 Outlook that will focus on three main themes:

  • The New Nominal
  • Globalization Rewired
  • Turbocharged Transformations

Kindly RSVP by April 26, 2021

Visit our website for more information: 2021 Global Outlook: A new investment order, featuring Kurt Reiman

 

Smiling man and woman running with trees in the background

Living to 100: Financial planning for longevity

More Canadians than ever are reaching 90, or even 100 years of age. Join us for a discussion on issues and considerations for Canadians in retirement and their caregivers.

Thursday, April 29, 2021
12:00 p.m.- 12:45 p.m.

Online, via BrightTalk

RBC Wealth Management, Royal Trust and the National Institute on Ageing (NIA) are hosting the latest segment of their collaborative discussion series on ageing, offering valuable and actionable insights for older Canadians.

During this approximately 45-minute webcast, Leanne Kaufman, Howard Kabot, Michael Nicin and Bonnie-Jeanne MacDonald will discuss how financial planning for and during retirement should take into consideration:

  • Longer life expectancies and unforeseen life events
  • Issues impacting financial security in and into retirement
  • Best practices for decumulation strategies

Guest speakers

Leanne Kaufman, President and CEO, RBC Royal Trust
Leanne is responsible for the strategy and overall management of the estate and trust business which provides wealth protection and transfer solutions across generations to high net worth Canadian families.

Howard Kabot, Vice-President, Financial Planning |Wealth Management Services, RBC Wealth Management Canada
Howard is the head of Financial Planning for RBC Wealth Canada, overseeing a team of 90 financial planning professionals whose mandate is to provide financial planning to high net worth clients and advisors of RBC Wealth Management Canada.

Michael Nicin, Executive Director, National Institute on Ageing at Ryerson University
Michael previously served as the Chief of Staff and Senior Policy Advisor to the Ontario Minister of Seniors Affairs, leading the design and launch of the provincial seniors strategy.

Bonnie-Jeanne MacDonald
Director of Financial Security Research, National Institute on Ageing at Ted Rogers School of Management

Bonnie-Jeanne is the Director of Financial Security Research at the National Institute on Ageing, Ryerson University. She is also an actuary and the resident scholar at Eckler Ltd.

To participate in this virtual event:

  • Click on the “I will attend” link below to register for the event. If this is your first event, you will need to provide your name, email and the name of your advisor. Please make sure you set your time zone and your email preferences.
  • You will receive a confirmation of your registration with a link to the event and a booking to add the event to your calendar.

Kindly RSVP by April 28, 2021.

 


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!

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.