Results from the technology industry

Jul 30, 2021 | Elinesky Schuett Private Wealth Management


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In our update this week, we discuss the current earnings season and outlook for the tech sector given its influence on global markets. Also below, you will find two other resources that provide insight into the current state of the markets:

  • Canadian markets at the half: What history tells us
  • What message is stock market volatility sending?

In addition to our economic commentary, we’ve included a link to the video, What is a trust?, featuring The Wealthy Barber, David Chilton. If you are a business owner currently considering your cyber security needs, please make sure that you click on the link to read the article below, Five steps for picking a cyber security firm for your small business.

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


Please note that our office will be closed on the Civic Holiday, Monday, August 2, but we will be back answering your phone calls and emails on Tuesday, August 3. Also, our weekly blog post will not be published next week, but will be back online the following Friday.


Your economic update

We’re in the middle of the dog days of summer, and global equity markets remain in the midst of a very strong year, with Canadian, U.S., and European equities sitting near all-time highs. Asian markets have not kept pace, but we’ll delve into that story at a later date.

The U.S. Federal Reserve garnered some attention over the past week, as it always does. Its updated economic outlook was largely in-line with what investors were anticipating, and the Fed, as it’s often called, is not likely to alter one of its major monetary tools – its asset purchase program – until the end of the year. The other noteworthy development in recent weeks has been the earnings season, which has been good enough to meet elevated expectations. Below, we discuss the results from the technology industry, which is arguably the most important for global equity markets given its sheer size and resilience in the face of the COVID-19 pandemic.

Many large technology companies reported second quarter results over the past week that were solid overall, with the odd exception here and there. It reflects the favourable demand environment for the range of products and services they offer. Expectations were high, and so the stocks themselves did not necessarily respond as positively as some may have wanted, serving to remind investors that stocks are effective at reflecting expectations and it’s the future that matters more than the past.

Generally speaking, the long-term earnings outlook for the sector remains encouraging given secular forces that should continue to drive demand. In addition, the reopening of economies should act as an additional tailwind. However, it’s worth acknowledging that the pace of growth may decline from the exceptionally strong levels seen in recent quarters. This moderation can be characterized as a return to more normal growth as the pandemic-driven benefits wane and the year-over-year comparisons simply become harder to sustain. Cost pressures are also building, driven by supply chain issues, and are expected to be a challenge over the intermediate term.

Investors should also be mindful of two other issues facing the technology sector: interest rates and regulation. Both present potential headwinds that may come and go over time. The risk of higher interest rates was a concern earlier this year when inflationary pressures began to mount. Higher rates present a risk to the valuation that investors assign to future earnings and cash flow. This concern has faded in recent months, but is bound to resurface at some point in the future.

Meanwhile, regulation is not a new worry either. Nonetheless, regulatory uncertainty is poised to escalate in the U.S given an administration that appears willing and eager to take a harder stance against big tech. It’s hard to predict the outcome of any legal matter, but the mere existence of more investigations and court cases could create new sources of uncertainty.

We believe technology will remain one of the most influential industries in the global equity markets going forward, but, as with all investments, it’s important to recognize there are opportunities and risks, and portfolios should be managed accordingly by ensuring appropriate exposure and maintaining proper diversification.

 

Canadian markets at the half: What history tells us

text over a background picture of a city. Text: Canadian markets at the half: What history tells us. The Download. RBC Global Asset Management. RBC logo in bottom right cornerIn this episode, Scott Lysakowski, Vice President & Senior Portfolio Manager, Head of Canadian Equities, Phillips, Hager & North Investment Management, reflects on an exceptionally strong first half for Canadian markets. Scott also breaks down sector performance, and looks at the lessons of history to help frame the rest of the year.

 

Listen to the podcast online: Canadian markets at the half: What history tells us

 

 

What message is stock market volatility sending?

Close-up of a screen showing stock ticker graphs. Text: Global Insight WeeklyTwo steps forward, one step back and get used to some additional volatility. These are the messages we think the U.S. equity market is sending. The back-and-forth action raises questions about why the market is on edge, and has prompted some unease about this phase of the bull market and economic cycle.

Read more online: What message is stock market volatility sending?

What is a trust? The Wealthy Barber explains

Man in a sweater leaning against a blue wall. RBC Wealth Management Royal Trust logo in top left cornerTrusts protect your wealth for the benefit of current and future generations. Watch the full video to learn more: What is a trust? The Wealthy Barber explains

This video is part of a four-part education series to help you protect your estate today and for the future.

 

Five steps for picking a cyber security firm for your small business

Illustration of a laptop, lamp, and coffee cup on a desk. There is a clock in the background showing 4 o'clockCyber security is challenging for a small business to handle alone. Even large businesses’ cyber security teams can struggle with a shortage of available cyber security talent. Cyber security employment must grow by 89 percent worldwide to cover the demand for 3.12 million more professionals.

Learn how to assess your needs and find the best fit when hiring a cyber security firm for your business: Five steps for picking a cyber security firm for your small business

Holiday closure: Civic Holiday, August 2

Family walking on a beach

Please note that our office will be closed on the Civic Holiday, Monday, August 2, but we will be back answering your phone calls and emails on Tuesday, August 3.

Also, our weekly blog post will not be published next week, but will be online the following Friday.

 

Community Corner

Each week, we like to end our emails 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.