In our economic update this week, we discuss the tug of war taking place between rising rates and earnings and the mixed bag of results from the technology sector. We’ve also included a recent podcast featuring Stu Kedwell, Co-Head of North American Equities with RBC Global Asset Management, When markets are down, think long term. Turning our focus to the U.S. equity market, RBC Wealth Management’s Jim Allworth and Kelly Bogdanova provide their insight in the article, What’s causing volatility in the U.S. equity market?

Tax, tax, and more tax season information! You’ve likely started to see a theme in our weekly newsletter leading up to this year’s tax season. This week, we have included an article that will provide you with general information about the Canadian tax system and how basic types of investment income are taxed, Tax planning basics.

Have you heard? Black Tie Bingo is back and will be live streaming on March 5. Event details and your link are purchase tickets is below. We are proud to be the bingo sponsor again this year, and hope to see you online at this great event!

Have you added the Chatter that Matters podcast to your favourites list? We’ve shared the latest podcast in our newsletter this week, Richard “Dickie” Clune on his life in hockey. You can also catch up on podcasts that you may have missed on the Chatter that Matters website.

You’re invited! We’re celebrating International Women’s Day on Wednesday, March 9, 2022 from 1:00 p.m. to 2:30 p.m. RSVP to this interactive virtual event using the link below.

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

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Economic update

It’s still early in the year, but we’re already witnessing quite the tug of war. More specifically, a standoff between two forces, pressure on asset valuations as investors anticipate higher interest rates and the prospects of above average earnings growth.

In early January, investors began to reprice the odds of central banks becoming more aggressive in their approach to combat elevated inflation, leading to a rather weak start to the year. Shortly thereafter, the earnings season began and investors were reminded that corporate profits remain solid and have the potential to grow at a reasonable clip this year, driven by the services and more cyclical sides of the global economy. More recently, a number of global technology juggernauts reported results. Not to be outdone, central banks provided updates that have forced investors to reassess the outlook for interest rates once more. We address both of these recent developments below.

Central bank policy announcements

The Bank of England and the European Central Bank made policy announcements over the past week. The Bank of England announced a quarter point increase in its Bank Rate, which adds to the first hike it made late last year and was widely anticipated by investors. It also revealed that it will begin to reduce the size of its balance sheet in the near future, and that a number of its members were in favour of an even larger rate increase. Meanwhile, the European Central Bank, which was widely expected to remain stagnant this year, delivered a similarly hawkish message. It left its policy rate and balance sheet plans unchanged, but its comments suggest it is growing increasingly uncomfortable with the inflation backdrop. Investors now believe the door is open to some potential rate action from the European Central Bank as soon as this year, rather than in 2023 as was previously expected.

The technology sector’s start to the year

The technology sector, the world’s largest and one of its most important, has been a poor performer to start the year. Much of the weakness can be attributed to the dynamic explained above, the potential for higher interest rates putting pressure on a sector with elevated valuations. In addition, the past few weeks have delivered a mixed bag on the earnings front. Among the large cap companies^*, some have provided very good results and guidance that reassured investors that growth prospects remain robust. Others missed expectations, for one reason or another. As we have transitioned to a climate where investors are more closely scrutinizing valuations than they have in the past, it’s no surprise to see the stocks of companies who miss expectations get punished.

On the whole, the technology sector still possesses some enviable growth prospects and exposure to powerful secular trends that are not going away any time soon. However, this sector may remain vulnerable until the broader market can get comfortable with the degree of monetary policy tightening that may take place. Ultimately, central banks will need more time to assess inflationary pressures and recalibrate policy, leaving investors to ponder the pace and extent to which central banks may raise rates. With this in mind, our investment approach will remain patient with high conviction holdings and nimble should new opportunities arise. And as always, ensuring that portfolios are adequately diversified in the face of a new interest rate cycle that is getting underway.

^*large market capitalization

When markets are down, think long term The recent spike in volatility may have investors questioning whether to take their money out of the market and wait for better days. While market downturns are a normal part of investing, there are strategies that investors can use to help mitigate the short-term shocks and be prepared for when markets eventually recover. In this podcast, Stu Kedwell, Co-Head of North American Equities with RBC Global Asset Management, discusses the importance of sticking to a long-term investment mindset during challenging times. Listen to the podcast online:When markets are down, think long term

 

What’s causing volatility in the U.S. equity market?

The global equity market’s mood shifted dramatically in the early weeks of 2022, as the S&P 500 and most other major indexes pulled back enough to break some well-established uptrends.

As the U.S. equity market faces headwinds including inflation and expected rate hikes, we look at the implications for portfolios.

Read the article online: What’s causing volatility in the U.S. equity market?

Tax planning basics  This article provides an overview of the Canadian tax system and how basic types of investment income are taxed for an individual. In developing a broader understanding of the Canadian tax system, you may be in a better position to invest tax-efficiently, which may help you keep more of your investment income and achieve your financial goals.  Download your copy of the article here: Tax planning basics (pdf) In case you missed one of our recent tax articles, the list below includes the articles that we’ve shared recently. Tax planning checklist for the owner-manager (pdf) Tax planning calendar (pdf) RBC Dominion Securities Tax Reporting Guide If you have questions about your tax package from Elinesky Schuett Private Wealth Management, please contact Brittany Beach at brittany.beach@rbc.com or 519-822-2024. Brittany will be your first point of contact for all 2021 tax package questions.

 

Chatter That Matters: Richard “Dickie” Clune on his life in hockey

Richard Clune battled his whole life to play elite-level hockey. Behind the scenes, he also battled mental illness and substance abuse. With the heart and will of a warrior, Clune fought and won those battles — and now mentors young players.

Listen to the podcast online: Richard “Dickie” Clune on his life in hockey

Get your daubers ready… Black Tie Bingo is back! Are you looking for something fun to do on March 5? How about Black Tie Bingo, black tie optional! We are thrilled to be back again this year as the bingo sponsor, and hope to see you online yelling BINGO! On Saturday, March 5, enjoy a live-streamed Around the World gala experience with Master of Ceremonies, Sean Furfaro. You'll receive a box filled with everything you need for an incredible at-home gala experience, including a gourmet four-course-ready-to-heat meal, a signature cocktail kit, selected wine, access to the online silent and live auctions, supplies to play a fun game of bingo, and a chance to win great raffle prizes! Proceeds will help fund a powerful new MRI scanner for the Guelph General Hospital! Get your tickets before Tuesday, February 8. For more information and to buy your tickets, visit www.blacktiebingo.com.

 

You’re invited! International Women’s Day
Wednesday, March 9, 2022 1:00 p.m. – 2:30 p.m.

Our International Women’s Day event will be a virtual celebration this year. Please join us on Wednesday, March 9, from 1:00 p.m. to 2:30 p.m. for a live and interactive discussion with three inspirational women.

We are thrilled to welcome Manjit Sharma, Emma Rogers, and Lauren Power to our panel this year. Karie Huisman from our team will once again be our moderator for this event. Visit our special event page for more information about these extraordinary women, International Women’s Day 2022.

Click the link to RSVP early!

 

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!

• Elora music app aims to help kids sing away pandemic blues

• U of G grads headed to Beijing Olympics

• Milton Film Festival features work of hometown filmmaker

• Here are some ways to celebrate Black History Month

• Groundhog Day - Shubenacadie Sam, Wiarton Willie disagree on weather forecast

• Guelph trail getting a makeover (video)

• Downtown illumination to shine a light on Black Heritage Month

• Orpha completes her 100 walks for charity just before her 100th birthday (8 photos)

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.