All eyes on the Federal Reserve

Jun 18, 2021 | Elinesky Schuett Private Wealth Management


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This week in our economic commentary, we discuss the Fed pivot and the implications for investors going forward. We’ve also included to two additional resources in this week’s blog post, an article focusing on the Financial sector and a video providing an investment outlook for summer 2021.

  • Can the Financials sector keep the rally going?
  • Investment Outlook Summer 2021 video, featuring Eric Lascelles

Thank you to all of you who attended our recent online event, Understanding the Importance of Advance Care Planning. For those who were unable to attend, we will be sharing the event recording in one of our upcoming weekly blog posts.

Interested in attending another online seminar? RSVP for the next RBC Wealth Management Canada event, Diversity and ageing: Honouring our identities. Event information and your RSVP link are below.

Our post this week also includes information about two community fundraising events, the Tour de Guelph Community Ride that is currently underway, and the Community of Hearts Charity Golf Classic. We are thrilled to be supporting both events, as participants and as sponsors.

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

 Wishing a very Happy Father’s Day to all of the dads, grandpas, dads-to-be, stepdads, and father figures!


Your economic update

All eyes were on the U.S. Federal Reserve this past week, and it did not disappoint, at least with respect to the buzz generated within the investment community. The Fed, as it is often referred to, appears to be preparing for a shift in its approach to monetary policy. While there was some weakness in bonds and segments of the equity markets, the most notable action occurred in the currency markets. We explain more below.

This past week, the Fed provided an update on its economic and inflation projections, as well as the anticipated path it foresees for interest rates and bond purchases. Investors had been accustomed to a Fed that had, to this point, exhibited substantial patience and resisted the temptation to alter its approach despite a domestic economy that has improved and pricing pressures that have surfaced. As a result, some investors were surprised by the new estimates and comments released this week that would suggest that policymakers are preparing for a transition away from the ultra-accommodative monetary policy.

The Fed’s projection for economic growth for the year was revised higher, but its inflation forecast saw the biggest boost, with the estimate now expected to be slightly above its preferred target through the next few years. Moreover, Chairman Jerome Powell acknowledged that while they still view the uptick in inflation as temporary in nature, there is the possibility it could be higher and longer lasting than expected. He indicated that committee members have begun to talk about when to start reducing their monthly bond purchases, which they have been using as another means of fostering favourable financial conditions. Many expect a formal announcement of such a plan later this summer.

Not surprisingly, investors zeroed in on the fact that an increasing number of Federal Reserve committee members moved up their estimated timeline for interest rate hikes. Of the 18 members, 11 expect at least two rate increases in 2023, while seven see rates potentially beginning to move higher next year, up from four members just a few months ago.

The reaction in the markets was noteworthy, particularly amongst currencies. The U.S. dollar rose meaningfully relative to most currencies, putting more pressure on some commodities that had already been weaker of late. But the U.S. currency still has a ways to go to unwind the underperformance witnessed against many currencies since last year. While it has some wind in its sails for now, an improving economic backdrop outside of the U.S. should be more supportive of other currencies.

In the grand scheme of things, the developments this past week were not too surprising. The economic wounds that arose last year have been closing, and the pending shift in approach of the Federal Reserve, and other central banks for that matter, reflect a return to a more normal environment, which should come as a relief to many. Nevertheless, interest rate hikes over the next number of years, should they occur, increase the odds of entering an environment where access to credit becomes more difficult. Most major market declines have coincided with recessions, and most recessions have occurred when financial conditions become restrictive. Thankfully, we envision a very gradual transition in monetary policy and don’t envision those kind of conditions arising any time soon.

Can the Financials sector keep the rally going?

Woman running up a wide set of stairs outdoors. Can the Financials sector keep the rally going? Financials have sprinted higher since late last year when the first vaccine was approved in the U.S., which prompted optimism about the eventual economic recovery—one that is now unfolding.

This equity sector has significantly outperformed the overall market, surging 38 percent since early November 2020, double the S&P 500’s gain of 19 percent and outpacing all other sectors (excluding Energy).

Is there further to go? We think so. Read the full article online: Can the Financials sector keep the rally going?

 

Investment Outlook Summer 2021 video, featuring Eric Lascelles

In this video, RBC Global Asset Management’s Chief Economist, Eric Lascelles, shares his outlook for global economic growth as the pandemic recovery continues. He also provides perspective on inflation and housing markets, and whether both are expected to continue rising.

Watch the video online: Investment Outlook Summer 2021 video, featuring Eric Lascelles

Text: Global investment outlook. Eric Lascelles - Summer 2021

Watch time: 10 minutes 23 seconds

Diversity and ageing: Honouring our identities

Thursday, June 24, 2021 – 12:00 p.m. – 12:45 p.m.

Two women smiling at each otherIn partnership with the National Institute on Ageing (NIA), RBC Wealth Management and RBC Royal Trust are proud to present the latest segment of their collaborative discussion series on ageing, offering valuable and actionable insights for older Canadians.

During this 45-minute webcast, our panel will discuss how the right plan, people, and conversations can chart a course for safeguarding ongoing control and expression of your identity. Learn how these discussions, and the creation of an action plan, can ensure your intentions and wishes are realized throughout your life.

Use the link below to RSVP

 

Happy Father’s Day

White text on a blue background: Happy Father's DayWishing a very Happy Father's Day to all the dads, grandpas, dads-to-be, stepdads, and father figures! Last year, we created a Father’s Day video to celebrate the Elinesky Schuett Dads - we are looking forward to creating a new video in 2022 when we can all be together again!

Watch our 2020 Father’s Day video on our Facebook page: Happy Father’s Day, from the team at Elinesky Schuett Private Wealth Management

Did somebody say golf?

Community of Hearts is hosting a Charity Golf Classic on Friday, July 23, at Victoria Park East Golf Club. We’re looking forward to dusting off our clubs and getting on the greens for this tournament. We hope to see you there!

Community of Hearts is a not-for-profit, charitable organization in Guelph supporting youth, adults and seniors with developmental exceptionalities to achieve the level of independence they desire. Visit communityofhearts.ca for more information.

To register, contact Matthew Chate, Golf Committee Chair, at matthew.chate@rbc.com.

Image of a golfer swinging a club. Text to promote upcoming golf tournament on Friday, July 23. $400 for a foursome. Email to register, matthew.chate@rbc.com.

 

Tour de Guelph Community Ride

Group of people standing beside their bikes on the grass. On June 23, our team will be strapping on our helmets and dusting off our bikes to ride in the annual Tour de Guelph Community Ride, raising funds for The Foundation of Guelph General Hospital.
We are thrilled to support this great event, both through our team ride and as the presenting sponsor for the online photo album. For more information, visit tourdeguelph.ca.

You can also watch our 2020 Tour de Guelph Community Ride video on our Facebook page: Our Tour de Guelph Community Ride


 

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.