A few topics our newsletter touches on this month:

• Our Thoughts:  Ceiling lifted
• The role of an executor – helpful tools
• Other Links: Disruptors podcast, Global Insight (monthly)

Our Thoughts:  Ceiling lifted

A busy month for markets as investors have been preoccupied with the U.S. debt ceiling. Fortunately, a deal has been agreed upon with a bill being passed by Congress that buys the U.S. some time before it is likely to resurface yet again (in 2025). For politics watchers, you can read about how a deal got done here (Politico). This has allowed most investors to shift their focus back to fundamental issues and stocks rallied as a result in the first few days of June.

Canadian Banks: We periodically “check in” on the Canadian banks because they remain, by far, the largest weight in the domestic stock market. In many ways, it’s hard to have a view on Canadian equities without having thoughts on the banking sector. More importantly, the banks act as the primary lender to consumers, households, and businesses across the country. As a result, their operating results and commentary from management teams can offer us a glimpse into the health of the economy.

As always, there were puts and takes with each bank’s earnings results in recent weeks. First off, five out of six of the top banks increased their dividends, always a great long-term indicator. Credit trends remain the biggest concern amongst investors. When banks anticipate that clients may have more difficulties repaying loans in the future, they tend to set aside some capital (often referred to as “provisions”) to absorb those expected loan losses. Most investors expect the Canadian banks to steadily increase their provisioning to reflect an increasingly challenging backdrop. While the banks on average have indeed seen their provisions trend higher, the increases to date have been well within the range of expectations. Moreover, management teams have yet to issue any significant warning signs related to potential losses in areas like mortgages or commercial loans for example. In a nutshell, the actions and comments to date suggest the Canadian banks are preparing for but have yet to see meaningful and broad-based deterioration in credit trends.

Despite credit issues being manageable thus far, the banks are currently dealing with their fair share of challenges. First, revenue growth is proving to be difficult. The banks generate revenue in a variety of ways, but two important sources are loan growth and net interest margins. The former is slowing as demand for loans has declined. That’s not surprising given interest rates have increased, making it more costly for consumers and businesses to borrow. Meanwhile, net interest margins had benefitted over the past year from rising rates as banks were able to reprice their loans at a faster rate than what they were paying on customer deposits. That tailwind has faded with the Bank of Canada now on pause.

The second challenge facing the banks is on the expense front. Banks have been spending heavily on a range of things, from hiring new talent, to technology investments, acquisitions, and other discretionary outlays. But, this is coming under scrutiny from investors and management teams have acknowledged they have an opportunity to better manage expenses in the face of weaker revenue growth.

Overall, the results and comments from the banks suggest the environment is gradually becoming more challenging, but the credit issues that investors are concerned about have yet to materialize. Meanwhile, with respect to the banks themselves, we believe they are well capitalized and continue to prepare for what lies ahead. Investors need to remain patient with the sector and can continue to depend on them as very reliable sources of income.

By the numbers (May): Generally, it was a difficult month in global markets. The TSX was down 4.9%, the Europe, Australia & Far East index (EAFE) was down 4.6% and the Emerging Markets index was down 1.7%. The US was a very mixed bag owing to outsized gains in a small number of tech stocks, largely driven by excitement over artificial intelligence. This is best reflected in the tech-heavy NASDAQ being up 6% while the broader S&P was up 0.6% and the Dow Jones Index was down 3%. The Canadian bond universe was also down 1.7%. 

The role of an executor (Artie): Please find our link to our online executor helper, Artie.   There are a number of great resources in this link. I wish to direct you to two of them. If you scroll down a little bit you will see a link to the Estate complexity calculator; this can be used to determine how complex an estate administration will be/is. The other link which you may find very helpful is the link called Guided executor checklist. It gives you access to an executor checklist and guidelines on the steps and duties of an executor, template letters, as well as functions for you to track your progress and generate a report.  It’s confidential and there are no fees to use this tool.

Artie, the executor helper  Please see the attached link to our video which describes our Artie Tool:

Eng. Video : http://rbcnet.fg.rbc.com/assets/wm/estate-and-trust-services/documents/artie-demo-external-final-eng.mp4

If you or a loved one find yourself in the role of executor of an estate, please do not hesitate to reach out to our team with questions or for any support – we have lots of resources on hand that could potentially ease your transition into the role.

Other Interesting Listening/Reading

• Disruptors (Season 5) - 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.
  • Building Green: Fixing Canada’s Leaky Homes
  • Innovation Nation: 3 Canadians Share Their Secrets
  • From Ship to Shelf: Vancouver’s Port of the Future
• To check out our Global Insight Monthly for May find the link here.

Regards,

Mark, Peter, Sarah, Corinne and Nathalie

Gallivan Wealth Management