Welcome to our first weekly blog post of 2022. In our economic update this week, we discuss why most investors may be feeling a case of déjà vu. We’ve also included two recent recordings that feature RBC Global Asset Management’s Chief Economist, Eric Lascelles, Predicting the Omicron peak and the timing of quantitative tightening, and Forecasting the Federal Reserve.
As we start to approach this year’s tax season, we’ll be sharing a number of articles and links with you. Below is a link to our Client guide to 2021 tax reporting. We recommend you keep this handy and share it with your tax professional as it features targeted tax mailing dates, a tax information checklist to support you with our reporting package, and different ways to access the information.
We’ve also included two cyber security articles this week, including one specifically for business owners, Your employees are your first line of cyber security defense. The other article, That message asking for your login information isn’t from your bank, is an important read for everyone. Please feel free to share it with your family and friends.
As always, we end our weekly blog with a few good news stories from in and around our community.
IMPORTANT COVID-19 OFFICE UPDATEElinesky Schuett Private Wealth Management remains fully operational, with our team working primarily from their home offices at this time. As always, we safeguard our clients’ personal and financial information to protect their privacy and confidentiality. The health and safety of our employees and clients remains paramount, and at this time we continue to invite you to work with us through video meetings, phone and email, instead of in-person meetings wherever possible. Please contact our office at 519-822-2024 if you have any questions, or to coordinate the pick-up or drop-off of any items that cannot be sent electronically. |
Your economic update
Happy new year, sort of. If you’re experiencing a case of déjà vu, you’re not alone. Canada, and much of the rest of the world, is once again grappling with another wave of rising infections of COVID-19. It feels eerily similar to the beginning of last year, though there are some stark differences that help explain why the markets have not been too bothered to date. Instead, markets have been more preoccupied with a rise in bond yields to start the year, which coincidentally was also the case at the beginning of last year. We discuss these issues more below.
The Omicron variant
The Omicron variant, discovered just late last year, has rapidly become the dominant strain globally. Its high transmissibility has led to an exponential increase in global cases. While it may be much more contagious, it also appears less likely to cause severe illness. This may be a function of the virus itself, and because of the protection offered by vaccines. As a result, while hospitalizations are rising, the rate of change has been more modest compared to the growth in new cases. Yet, health care systems have come under strain in some areas once again given the sheer volume of people getting infected, including hospital staff themselves. As a result, some governments have responded with renewed restrictions in hopes of limiting any further pressure.
There will be an economic cost to this wave and the controls put in place. It will be largely borne by the services side of the economy, just as we’ve seen with prior episodes. Additionally, there may be more disruption, staff shortages, and loss of productivity across various industries in the near-term given the large number of people getting infected and being unable to work. However, each successive wave of the virus to date has resulted in less of a hit to the economy because governments, households, and businesses have learned to cope and function as best as possible. Investors expect these renewed disturbances and the associated impact to the economy to be relatively short-lived. Furthermore, some investors are holding out hope that the Omicron variant could be the catalyst that helps transition this virus from a pandemic to an endemic state, something that epidemiologists have expected to happen at some point in the future. That would mark a meaningful change, where the virus would exist without leading to mass hospitalizations.
Government bond yields on the rise
Amidst all the attention being paid to the virus, there has been another development of late that may be more impactful for the broader markets. Government bond yields have been on the rise to start the year, suggesting investors have been selling government bonds, pushing their prices lower and yields higher. Bond yields tend to be driven by expectations of the future. More specifically investors may be anticipating stronger growth, higher inflation, or higher interest rates, particularly in light of the U.S. Federal Reserve which released some notes from its December meeting that revealed the committee may be gearing up to withdraw its supportive policy faster than the consensus view. Rising bond yields are not necessarily a bad thing, but these episodes can create short-term volatility as investors reposition portfolios accordingly.
Most noticeably, we have witnessed some strength recently in sectors like the banks that tend to benefit from higher bond yields as they are a driver of lending margins. Meanwhile, areas like technology and growth stocks in general have seen some weakness given how well they have done and the sensitivities of their valuations to bond yields. This may end up simply being a short-term rotation, similar to what we saw a year ago when bond yields witnessed a similar, but limited, ascent. It bears monitoring though, because there’s always the risk of a more meaningful and sustained change in trend.
Predicting the Omicron peak and the timing of quantitative tightening
Watch the video online: Predicting the Omicron peak and the timing of quantitative tightening |
With the Omicron variant dominating headlines into the new year, Chief Economist Eric Lascelles explores when we might expect this wave to peak. Before then, he estimates more economic damage compared to the last lockdown given the high count of sick workers. He also shares his thoughts on how financial markets may respond to this year’s anticipated rate hikes. Finally, he revisits key themes from last quarter, including supply chain stress and inflation heat.
Podcast: Forecasting the Federal Reserve
A hawkish pivot from the U.S. Federal Reserve has mapped its way into markets and into the economy in many different ways. Chief Economist, Eric Lascelles unpacks the latest from the Fed, as expectations mount for a faster stimulus wind down and future rate hikes. Eric also provides a look at taper tantrums throughout history, and dives into the latest jobs numbers.
Listen to the podcast online: Forecasting the Federal Reserve
Client guide to 2021 tax reporting
Already thinking about tax time? This guide summarizes the important dates and required tax information to support preparing your annual tax return. It also includes a handy list of potential tax slips you may receive from RBC Dominion Securities® (depending on your investment holdings and account activity). View the guide online: Client guide to 2021 tax reporting There are also a few key dates to remember as we approach this year’s tax season:
Have questions about your tax package from Elinesky Schuett Private Wealth Management? Brittany Beach will be your first point of contact for all 2021 tax package questions. She can be reached by email at Brittany.beach@rbc.com or call 519-822-2024. |
That message asking for your login information isn’t from your bank
Scammers are creative — finding ways to try and get your banking or other personal information. They might use social media, email, texting to make contact and try to convince you to share account information. Of course, their ultimate goal is financial gain but first, they must convince you they are someone who you can trust.
Banks design systems to protect your accounts, so scammers will try to trick you into giving them your account information. Read this article to find out how scammers may try to get your bank information, That message isn’t from your bank.
Attention business owners! Your employees are your first line of cyber security defense
Almost all modern cyber-attacks against businesses use an element of social engineering to get gaining an initial foothold. That’s why it’s important for employees know some of the common ways they could be tricked into giving up a piece of information that will be useful to a cyber-criminal. Read more online: Your employees are your first line of cyber security defense |
As businesses continue to move more services online and adapt to remote work they should be aware of the cyber risks. Most organizations’ cyber defenses are stronger today than they were in the early days of digital adoption, which means it’s harder to break into an organization purely based on technical methods.
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 Humane Society receiving donations in Betty White's memory
- Guelph Public Library no longer charging overdue fines
- ArtsEverywhere Festival announces online and in person events for 2022
- Coldest Night of the Year back virtually after record breaking year in 2021
- Drayton Entertainment announces new ‘Backstage Pass’ digital series
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.