A few topics our newsletter touches on this month:

• Our Thoughts: Positive Outlook on Earnings  
• Spousal Loan Interest Deadline June 30^th for 1% Prescribed Rate
• Other Links: Global Insight, RBC Economics & More

Our Thoughts: Positive Outlook on Earnings 

It has been a challenging few weeks for global equity markets, with most having been relatively weak of late. There’s no one factor to blame, though inflationary pressures and the implications for central bank interest rate policy remain core issues. Uncertainty around the Ukraine conflict is undoubtedly also affecting markets. The result is a mixed bag that has generated more than a bit of investor wariness despite a generally positive earnings season.

Investors were quite cautious heading into earnings season, believing that companies were witnessing deteriorating demand, or rising costs, or worse yet, a combination of both. Fortunately, the results reported thus far have been somewhat reassuring. Earnings growth for the broader developed markets is now expected to be over 10%, nearly double the original estimate at the start of the reporting season. Moreover, some of the upside to forecasts has been driven by margins, suggesting cost pressures have not been as severe as expected, or at least not yet. Nevertheless, there are clearly some industries where labour, commodities, and other inputs are either in short supply or witnessing meaningful pricing pressures. On average, the results suggest that companies are still seeing decent levels of demand, particularly from consumers, and are finding ways to navigate through the cost pressures with a degree of resiliency.

The outlier in terms of investor sentiment continues to be the Technology sector, with one important factor weighing on it: anticipation of higher interest rates. Stock prices tend to be driven by a discount rate that is applied to a stream of future earnings, cash flows, and dividends. The rate that is used is heavily influenced by the level of interest rates. All things equal, a higher rate results in lower prices, and vice versa. Higher growth stocks, like some of those in the technology sector, are particularly sensitive because of the back-ended growth of their long-term cash flows. As a result, it’s not surprising to see technology stocks under pressure in a year when bond yields have been rising and central banks are expected to raise rates rather forcefully.

Overall, investors should be comforted to some extent by the earnings season that has unfolded thus far. It suggests the operating environment remains reasonably healthy from a demand perspective. Nevertheless, the results have not been enough to offset the myriad of macroeconomic and geopolitical issues that continue to confront investors. For this reason, we continue to prioritize diversification in our equity portfolios to ensure they are as prepared as they can be for a potentially wider range of future outcomes.

Spousal Loan Interest June 30^th Deadline for 1% Prescribed Rate:

Clients who could benefit from making family loans for income splitting have until June 30^th to lock in a 1% prescribed interest rate. If you are interested in learning more about this type of strategy, or reviewing your financial plan, please reach out to our team to book a call.

By the numbers (April): The TSX was down 5% while S&P 500 was down 6.1% (-8.7% in US dollars). The Europe, Australia & Far East index (EAFE) was down 4.1%, while the Emerging Markets index was down 3.1%. The Canadian bond universe was down 3.5%.

Interesting Listening/Reading

• Disruptors (Season 4) -  A dynamic ~30 min RBC podcast co-hosted by John Stackhouse and Trinh Theresa Do about reimagining Canada’s economy in a time of unprecedented change.
  • Brain Power: Why Neurotechnology is Making Waves
  • The 10-Minute Take: Food Inflation & Agtech
  • The Climate Conversations: How to Achieve Energy Security in a Low-Carbon World
  • The Climate Conversations: Can Clean Tech Rise to the Challenge?
• To check out our Global Insight Monthly for April find the link here
• RBC Economics “Forward Guidance: Our Weekly Preview”. This week touches on the tight labour markets in Canada & the US.

Reminder: Please let us know if any of your personal information has changed including your address, banking information, contact information and employment details

Summer is a great time to review you long-term goals and retirement plans - please do not hesitate to reach out to any member of our team to book a consultation.

Mark, Sarah, Peter, Corinne & Nathalie

Gallivan Wealth Management Team

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This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this report are provided for general guidance.  Readers should consult their own Investment Advisor when planning to implement a strategy.  Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change.  The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © 2022 RBC Dominion Securities Inc. All rights reserved.