In our economic update this week, we discuss the recent market volatility and the silver lining that has emerged. We have also included two great podcasts to listen to:

• Fed rate raise, mixed jobs data, recession risk mounts, featuring RBC Global Asset Management’s Chief Economist, Eric Lascelles
• Where we are today, and where we might be headed, featuring Michael Schuette and Tylar Lunke from RBC Wealth Management

In addition to the featured economic commentary above, we have one more economic update link to share with you this week. On April 26, we had the pleasure of hosting Brad Willock, RBC Global Asset Management’s Vice President and Senior Portfolio Manager, for an online and interactive session where he provided his insights into the economy. Your link to watch the replay online is below.

We have also included an article that speaks to the importance of making a Will and it provides you with a few tips to get you started, Making a Will: Six things to help you leave a lasting legacy.

There have been a few mentions in the media recently regarding cyber security, and we wanted to share some of the resources available online to help protect yourself from scams. An article regarding phone scams is below, Be wary of phone and messaging scams, along with your link to RBC’s cyber security website.

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

Volatility has picked up noticeably in recent weeks, with rather large swings higher and lower. To make matters more complex for portfolios, bond prices have moved lower, suggesting they have not offered the kind of diversification benefits investors have come to expect. In this economic update, we offer some perspective on the recent market turbulence, address the issue of inflation expectations, and discuss a silver lining that has emerged in the wake of this year’s challenges.

Turbulence in the markets

Global equity markets have had a poor year thus far, but periods of market weakness are not uncommon. In fact, the U.S. equity market, which is the most widely followed, has averaged at least one sizeable decline, 10 percent or more, every year since 1975, with the average fall being nearly 20 percent. Yet, the U.S. equity market still managed to generate a positive annual return in 35 of the past 46 years. In other words, dealing with market volatility is part of the investing experience.

A question investors may be asking is whether the declines year-to-date signify the start of something potentially more serious that would cause a durable impact to the future trajectory of the global economy and the path of corporate earnings. After all, these two factors, which themselves are intertwined, tend to be the predominant drivers of longer-term equity returns.

Elevated inflation

There is certainly no shortage of concerns: the war in Ukraine and the knock-on effects through commodities, and China’s various lockdowns that threaten its growth outlook and exacerbate the problems facing global supply chains. But, the primary culprit behind the weakness seen in markets is inflation, which has been elevated and rising. The bigger risk is that it becomes embedded in the expectations of consumers and businesses and becomes self-fulfilling. A longer lasting period of elevated inflation could present a meaningful headwind to economic growth and corporate earnings.

Inflation expectations have indeed been creeping higher. This explains the relatively aggressive actions undertaken by central banks who have been raising interest rates rather forcefully. Yet, there may be some relief on the horizon. Recent inflation readings in the U.S. have hinted that growth in core prices, excluding food and energy, may be on the verge of starting to slow. In other words, inflation may remain elevated but close to peaking, marking an important change in trend as we move into the second half of the year.

The silver lining

Equity markets have been under pressure, but so too have bonds. In fact, bond markets have had one of their worst starts to a year. While it’s easy to focus on the poor returns of late, there is a silver lining. Given the sell-off in global bond prices, the yields offered by government and corporate bonds have risen meaningfully. As a result, there is now an opportunity to lock in future returns in fixed income that are significantly higher than levels seen over the past decade. Many investors had shunned fixed income in recent years because of very low yields. However, the potential for future returns from the asset class has now arguably changed, for the better.

Periods of market turbulence, such as the current one we are experiencing, can understandably cause some angst. Yet, it’s a relatively normal phenomenon that occurs from one year to the next. The key risk remains whether inflation becomes entrenched in the expectations of businesses and consumers. We’ll be watching this closely, in addition to the odds of a U.S. recession which remain low for the time being. In the meantime, we’ll be considering opportunities in our portfolio given the improved prospects that have emerged.

Fed rate raise, mixed jobs data, recession risk mounts In this episode, RBC Global Asset Management’s Chief Economist Eric Lascelles discusses the Fed’s latest interest rate hike, and what the central bank’s intentions for future hikes could mean for the broader economy - including an elevated risk of recession. He also provides some thoughts on labour market trends and jobs data in the U.S. and Canada. Listen to the podcast online: Fed rate raise, mixed jobs data, recession risk mounts

 

Audio commentary: Where we are today, and where we might be headed

In this episode, RBC Wealth Management’s Tylar Lunke and Michael Schuette discuss recent market activity, diversification’s recent pitfalls, and how to keep a long-term view in periods of volatility.

Listen to the audio commentary online: Where we are today, and where we might be headed

Event replay: Economic update with Brad Willock In this session, Brad will discussed the U.S. equity markets and provided context around some of the recent events and uncertainties that have unfolded over recent months. He touched on key topics including the potential for expansion, future earnings growth potential, and highlighted some of the main risks to monitor as we look forward. Watch the event replay online: Economic update with Brad Willock

 

Making a Will: Six things to help you leave a lasting legacy

“Failing to create a valid Will eliminates your ability to control who inherits your estate, and when," says Leanne Kaufman, head of RBC Royal Trust and president and CEO of The Royal Trust Company. “Perhaps more importantly though, it shifts the burden of responsibility from you to those you are leaving behind — a responsibility to organize your affairs because for whatever reason you did not."

Preparing a Will may be the most important legacy you leave. This article will provide you with some tips to get you started: Making a Will: Six things to help you leave a lasting legacy

Be wary of phone and messaging scams If you receive a call from someone claiming to be from a reputable source who wants you to share your personal and banking information, it could be a “vishing” scam, a term derived from “voice” and “phishing.” Here’s how it works: A cyber criminal will call you and pose as a representative of a reputable company. They will attempt to get you to reveal personal information over the phone or perform an action, such as transferring money to another account or sending your bank cards to an address they provided. You could also receive an unexpected call about a refund or an issue with your debit or credit card. To fix the “issue,” they ask you to confirm your payment and bank account details. What you should do: Never share personal or banking information over the phone Hang up and call the company’s official number to verify that the request is genuine If you accidentally share your banking information, call your financial institution immediately. For more information on how to protect yourself from fraud and online scams, please visit RBC’s cyber security website: Cyber Security

 

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!

• Joanne Young Evans takes mental health journey to the Yukon
• City launches app to alert residents of localized emergencies
• Indigenous culture comes to the walls of Waverley Drive Public School
• Ribfest Guelph officially returning as in-person event
• Georgetown and Milton hospitals receive $20,000 donation
• Remembering John McCrae: Guelph celebrates 150th birthday of famous 'In Flanders Field' poet

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.