From our Portfolio Advisory Group (published April 19)
The past few weeks have seen more meaningful activity across global equity, fixed income, commodity, and currency markets, marked by an increase in volatility. Two developments were particularly noteworthy. The first is a significant shift in U.S. interest rate expectations due to recent inflation data. The second concerns heightened geopolitical tensions in the Middle East, following the Iranian and Israeli attacks on each other, which has left investors pondering the potential impacts on financial markets. We discuss both below.
Nearly a week ago, Iran launched an attack on Israel using hundreds of drones and missiles, reportedly in response to an Israeli strike in Syria earlier this month that killed several members of Iran’s armed forces. While Israel successfully defended itself against the attack, it represented a notable escalation in tensions as it was the first direct attack by Iran on Israeli soil. More recently, Israel has reportedly retaliated with an attempted strike that appears to be confined to military targets in Iran. Oil prices, which tend to reflect the region’s geopolitical risk most closely, have not surprisingly been volatile over the past few weeks as investors try to gage the severity of this escalation and the risk of further destabilization in the region.
From a market standpoint, the more influential developments have been on the inflation and interest rate fronts. The U.S. inflation data for March showed that, for a third month in a row, the pace of inflation in the U.S. was no longer easing as it had for the most of last year, and in some areas was reaccelerating. The stubbornness of inflation pressures presents a dilemma for the U.S. Federal Reserve, which had earlier expressed growing confidence that it would be able to cut rates at some point this year. But over the past week, the tone has changed, with a number of Fed officials acknowledging a need for patience before taking any action on rates. Consequently, markets expectations have also changed dramatically from anticipating up to seven interest rate cuts in the U.S. just a few months ago, to now expecting as few as one to two. This recalibration has driven bond yields higher (and bond prices lower), while stock markets have also trended downward recently, albeit relatively calmly, as investors grapple with the prospect of prolonged higher rates potentially affecting growth and corporate earnings.
Meanwhile, the U.S. dollar has rallied against most other major currencies, including the Canadian dollar. There is a growing view that central banks in Canada and other regions may start cutting rates by the summer, while the U.S. may not act until later this year at the earliest. That would lead to a widening of the differences between interest rate levels across the regions, which has traditionally been a driver of currencies.
We haven’t been terribly surprised by the shift in interest rate expectations described above. And we’re not convinced it fundamentally alters the investment outlook. Our approach continues to lean on a few high-level views. First, higher bond yields have improved the return potential for bonds, providing us with a more useful tool for some of our client portfolios. Second, we believe equities face a range of outcomes over the next few years that is a bit wider than normal, stemming from the rapid series of interest rates hikes over the last few years. That said, it’s clear that the U.S. economy has demonstrated less sensitivity to interest rate increases than other regions thus far, supporting its equity market. Nevertheless, we are managing our asset allocation positioning more carefully than usual given the macroeconomic backdrop.
Wealth Management
The big news out this month is the Federal Budget. Our Financial Advisory Support team has created this article . The biggest change is to the increase in capital gains inclusion rate effective June 25, 2024.
The budget proposes to increase the capital gains inclusion rate from 50 percent to 66.67 percent for corporations and trusts, and from 50 percent to 66.67 percent on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.
Federal budget 2024: Key measures that may have a direct impact on you - RBC Wealth Management
I have also attached our Portfolio Advisor spring edition which includes spring cleaning tips to keep your financial life in order.
Client events
The 2024 Client Survey is coming out on May 8.
As before, this year’s survey will be conducted online by an independent research firm, Ipsos, and should take about 7 minutes to complete. It will collect feedback in two key areas:
- Your overall experience with RBC DS
- Areas where you may benefit from receiving support, which will help us enhance your experience and adapt to meet your evolving needs
The invite will come via email with the subject line “RBC Dominion Securities 2024 Client Survey” and from the sender “no-reply@customervoice360.rbc.com.” Your responses will remain anonymous to both RBC DS and our team, unless you indicate otherwise.
Thank you for taking the time to provide your valuable input. It helps us improve how we serve you and your family today and in the future.
Coming up in the fall -
We are planning a fall market update event for September; please stay tuned for more details.
In the Community
A few of us from the office volunteered for Earth Day where we cleaned up garbage around our office in downtown Oshawa. See picture attached.
I attended the Mayor Lunch which was put on the Whitby Chamber of Commerce. It was exciting to hear about the growth in our community. See attached picture.
The Hearth Place Annual Gala was held on April 13, 2024. Thanks to all who contributed. It was a successful night, I am still awaiting final numbers but I’m confident we surpassed last year’s fundraising efforts.
See attached picture from the night, one of Janette Berthelot, Executive Director – I was a gold sponsor and the Gala brochure cover.
Team Notes
Our office will be closed for Victoria Day on Monday May 20!.