Economic update, growth forecasts, and trusts

December 09, 2022 | Elinesky Schuett Private Wealth


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In this economic update, we discuss the impacts and forecasts for the global stock market, interest rate hike policies, and the potential for tightening financial conditions. In the face of stock market pressures and negative news cycles, we emphasize the importance of a level of discipline and longer-term thinking.

Below, we have shared the latest insights from RBC Global Asset Management on forecasts for economic growth and inflation. We have also included a link to the most recent episode of Matters Beyond Wealth, where the topic of trusts as a valuable estate planning tool is explored. Finally, we are proud to share some of progress on our office renovations.

 


 

Economic Update

The recovery in global stock markets that transpired through most of November has started to fade with the arrival of the final month of the year. Despite recent rate hike announcements, there continues to be a growing view that central banks are nearing the final stages of their rate tightening campaigns. However, any resulting optimism is being countered by the realization that we are also inching closer to the point where tighter financial conditions start to weigh on demand and overall growth.

(If you’re interested, you can read a summary report from RBC Wealth Management’s Global Insight 2023 Outlook publication.  It’s worth a read, featuring contributions from some of RBC’s key investment resources from around the world.)

U.S. and global recession likelihood

As mentioned in that report, a U.S. (and global) recession is on the way. Historically, recessions eventually arise after interest rates move into restrictive territory, which is the case today. The likelihood of one occurring over the next year is high given the signals emitted by key leading indicators. The exact timing may be harder to assess, but it is RBC’s view that an economic contraction should arrive in North America around mid-year.

Keys to consider

There are short and long-term takeaways to keep in mind.

While we can expect to experience further bouts of stock market pressure and negative news cycles in the coming months, it is our view that the anticipation of future economic contraction has to a large degree been reflected in today’s markets.  While this year has seen some downturns in performance, we believe that 2023 holds optimism for the markets as the economy looks beyond the potential of recession into a period of growth.  Investment strategies during these times often require a proactive approach, a level of discipline, as well as longer-term thinking.  Historically, these situations have created opportunity to buy-into high quality dividend companies for long term investors. 

Recessions on average don’t last too long - and the mere anticipation of a recovery is often all that is needed to begin a new bull market. As time passes, any investment impact from recessions tends to be widely overshadowed by the gains that follow thereafter. Overall, recessions have generally presented themselves as mere blips on the longer-term upward trajectory of stock markets.

A further silver lining has emerged in fixed income - bond yields are now at highs not seen in well over a decade and as a result, return expectations from fixed income going forward are meaningfully higher than they have been in quite some time.  As part of our portfolio strategy, we recognize the benefit of incorporating fixed income into our mix with the arrival of recession-like conditions where appropriate.

Looking ahead to 2023

The year 2023 will likely bring its fair share of challenges. Nevertheless, we remain confident in our portfolio management approach which continues to lean on maintaining an asset allocation that is aligned with your financial plan, rebalancing accordingly, and consistently reviewing all positions to assess quality and appropriateness. We expect income will be an important source of returns in the year ahead, which bodes well for our fixed income and dividend-oriented equities.

 


Updated forecasts for economic growth and inflation

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In his most recent video, RBC Global Asset Management Chief Economist Eric Lascelles dives into the latest economic developments, including his thoughts on a possible recession, international central bank policies, and the signs that inflation might be beginning to turn.

Read more here >

 


Trusts - a valuable tool in estate planning

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On this episode of Matters Beyond Wealth, Elena Hoffstein from Miller Thompson, LLP, joins Leanne Kaufman to discuss how trusts can be a valuable tool in estate planning. Listen to this episode to learn three reasons why you may want to consider trusts as part of your planning.

Listen here >

 


Office Renovations

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Our office renovations are well under way, and our new space is starting to take shape. We are excited to share these renovations with you when you come into our offices after mid-January 2023.

As a reminder, there is currently no access to our elevator and there may be intermittent noise or other disruptions during this time. We continue to welcome in-person meetings and will make any necessary accommodations to ensure the best experience for our valued clients and partners.

 


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.