In our economic update this week, we look ahead to 2022 and provide our thoughts on the most influential factors that typically drive equity returns: inflation, growth, and central bank support. We’ve also included the most recent #MacroMemo video from Eric Lascelles, RBC Global Asset Management’s chief economist.
As the year draws to a close, there are several year-end tax planning strategies you may wish to consider. We’ve included an article that summarizes the most common strategies, but always recommend that you connect with your tax professional to discuss which ones apply to you.
During the holiday season, charitable giving is not only an important and impactful decision, but it can also be strategic. We’ve included an article this week that discusses some of the formalized options available for charitable giving, beyond a direct gift to a charity, Formalized donation options.
Have you heard the term “Trusted Contact Person” recently? You’re likely to be asked who you would like to designate as your Trusted Contact Person next time you meet with your advisor. To help you make your decision, we’ve included information about what a Trusted Contact Person is, and the role that they play in helping to protect your financial well-being. We’ve also included a link to an article with additional information, What is a “Trusted Contact Person”.
As always, we end our weekly blog post with a few good news stories from in and around our community.
Your economic update
Global equity markets have been able to shrug off some of the uncertainties driven by the discovery of the new Omicron variant a few weeks ago and are once again flirting with their highs for the year. The renewed strength comes amidst reports that the variant may be more transmissible, but cause less severe illness. Moreover, preliminary evidence suggests vaccines may still offer people some degree of protection. This has reassured investors that the risk posed to the global economy may be small. Below, we offer some thoughts on the year ahead, which we believe has the potential to deliver another good, albeit less spectacular, gains for investors.
Our underlying view for 2022 is that it will be a year marked by some moderation in trends. Rising levels of vaccinations and natural immunity, combined with less morbidity from variants that are likely to remain in circulation, should gradually lead to a more normal environment. We expect some return to normal in some of the most influential factors that typically drive equity returns: inflation, growth, and central bank support.
Moderation of inflation
Inflation has been on the rise all year, and in some countries it sits at levels not seen in decades. However, inflation is calculated as a year-over-year price change figure, and the 2021 readings have compared prices to the period a year ago when the effects of the pandemic were most severe. As we move through 2022, price levels will be compared to levels from this past year, and thus inflation readings over time should recede to some extent. Furthermore, some of the supply chain pressures that have plagued many industries may ease given the efforts that are underway. Meanwhile, the exceptional demand for goods should eventually shift back towards services as conditions normalize and the hospitality industry experiences a long awaited revival. Overall, these factors should lead to some moderation of inflation in pockets of the economy. Nevertheless, it may still remain higher than we’ve been accustomed to, underpinned by wage pressures as a result of labour shortages and the elevated level of job openings.
Normalized growth
Growth should also moderate in the year ahead. While 2021 is not yet complete, many major economies saw growth near the mid-single digits this past year. That’s a relatively big figure, particularly for the developed world, and meaningfully higher than the low single digits seen prior to the pandemic. Meanwhile, earnings growth from companies around the world was abnormally high. Much of the strength was the result of the rebound following last year’s declines and a return to more normal levels only makes sense, but growth next year still has the potential to be above average. Economies have yet to fully reopen in a synchronized way, production has been limited due to supply chain issues, inventories remain historically low and need to be rebuilt, and households have high savings and may be eager to spend. All this suggests that growth will look more normal, but has the potential to remain robust.
Central bank policy implications
Central banks have started to unwind some of the exceptional amounts of stimulus provided to economies over the past two years. Over the next week, the Bank of England and U.S. Federal Reserve are expected to provide policy decisions. Regardless of the outcome of these meetings, the future direction is clear: less stimulus and the possibility of tighter monetary policy in the year ahead. While this may create some bouts of volatility as investors digest the implications, we believe it will take time and several interest rate increases before credit conditions become more restrictive and present a headwind to economic growth. That is more likely a risk for 2023 or 2024, rather than next year.
Overall, we expect the backdrop in 2022 to be characterized by healthy economic and earnings growth, modestly lower inflation, and an interest rate environment that will remain favourable for consumers and businesses. That should be supportive for equity markets. As always, there will be risks, both known and unknown, that investors will have to grapple with. Moreover, stock market valuations are on the more expensive side of history. That does not necessarily imply there’s an imminent risk to equities, but it does suggest investors should manage their expectations, prepare for more moderate levels of returns over the foreseeable future, and ensure they have well diversified portfolios that are not overly exposed to any one particular asset class or sector.
Good economic data but lower growth forecasts amidst Omicron concerns, high inflation and hawkish central banks
Watch the video online: Good economic data but lower growth forecasts amidst Omicron concerns... |
2021 year-end tax planning
Opportunities to reduce your 2021 tax bill
As year-end approaches, taking some time to review your financial affairs may yield significant tax savings. To ensure that you leave no stone unturned, we’ve summarized some common year-end tax planning strategies in this article, 2021 year-end tax planning.
Have questions? Please contact us if you would like us to put you in touch with a tax professional.
Formalized donation options
Read more online: Formalized donation options |
Beyond a direct gift to a charity, there are many other ways you can support the causes that are important to you. This article discusses some of the formalized options of charitable giving, including private foundations, donor advised funds and endowment funds.
What is a “Trusted Contact Person”
It’s something new that you should know about as an investor. Your Trusted Contact Person is someone you choose who can help us protect your financial well-being.
A Trusted Contact Person is someone you give us written consent to contact. We may contact them if we suspect you are being financially exploited, if we’re concerned about your ability to make decisions due to physical or mental incapacity, or if we’re unable to reach you.
Your Trusted Contact Person’s role is to provide or confirm information only – they do not have any authority over your account, cannot make decisions on your behalf, and will not be given access to your detailed account information. We will not ask your Trusted Contact Person for information unless we believe it’s absolutely necessary to help you.
We will invite you to appoint a Trusted Contact Person when you open a new account or when we’re updating the “Know Your Client” information we have on file for you.
Find out more about what a Trusted Contact Person is and the role they play in helping us protect your financial well-being, What is a Trusted Contact Person? (PDF)
Harnessing health-care technology to support ageing in place
Read more online: Harnessing health-care technology to support ageing in place |
Community Corner
Each week, we like to share a few good news stories from in and around the community. We hope that they brighten your day!
- Guelph woman named among world's most inspirational and influential
- Guelph Humane Society to host first in-person adoption event in new building
- Christmas in the Park proved to be lucrative for artisans, fun for families
- Lights, camera, action! Centre Wellington sees filming boom during COVID
- Harriston Rising holds decorating contest, Candyland Christmas with Mrs. Claus
- Guelph grocery stores collecting donations for food bank
- New U of G initiative aims to showcase stories of rural Ontario
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.