Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

Markets

Market scorecard as of close on Friday July 2nd, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,226	0.0%	16.0%	29.5%
S&P 500	4,352	1.7%	15.9%	39.1%
NASDAQ	14,639	1.9%	13.6%	43.4%
Euro Stoxx 50	4,084	-0.9%	15.0%	23.0%
Hang Seng	28,310	-3.3%	4.0%	12.7%

Source: Bloomberg, RBC Wealth Management

• The U.S. equity market—and most markets, for that matter—finished the first half of the year on a positive note, adding to outsized year-to-date gains. The S&P 500 rose 2.2 percent in June, ending the month at an all-time high, and has rallied 15 percent so far in 2021.

• Equity markets, however, will be confronted with a shifting landscape over the remainder of the year and into 2022 as central bank policies become less dovish and economic and earnings growth rates come off the boil. For the U.S. market, we think this could lead to a transition period—from that of a robust rally phase (the S&P 500 has surged more than 90 percent since the March 2020 COVID-19 low) to a more typical market pattern of two steps forward, one step back.

• While parts of the country are fighting off record-high temperatures, investors have likely been more welcoming as it pertains to the recent series of all-time highs in the equity markets. The S&P/TSX Composite has generated a solid total return of approximately 16.6% year to date, outpacing the S&P 500’s return of approximately 15.1% in local currency terms. Adjusted in Canadian dollar terms, Canadian equities have outperformed their U.S. counterparts by approximately 470 basis points as the loonie has strengthened against the greenback year to date.

• So-called retail investors continue to move money into the stock market. In June, retail investors bought nearly $28B of stocks and ETFs on a net basis, according to data from Vanda Research’s VandaTrack, the highest monthly amount deployed since at least 2014.

• Private equity firms have had their busiest six months since records began nearly four decades ago, striking deals worth more than $500B and helping to advance global mergers and acquisitions activity to an all-time high.

• U.S. markets are closed today for Independence Day. 

 

Economy

Canada

• Affordability in a majority of Canada’s housing markets further eroded in Q1 2021 as aggregate home prices rose broadly across the country. The RBC Housing Affordability Measure, the ratio of ownership costs to household income (which is calculated by RBC Economics), rose for the third straight quarter in Q1 2021, up 0.9 percentage points to 52.0%. The deterioration was most significant in Vancouver (Affordability Measure up 1.9 percentage points), Halifax (up 1.7 percentage points), and Victoria (up 1.2 percentage points), though Montreal and Toronto were not far behind. 

U.S. 

• Barring a vigorous return of the pandemic, we think the U.S. economy should keep powering ahead at an above-average rate through next year, at least. The consensus forecast is for U.S. Real GDP to grow 6.6 percent in 2021, and RBC Capital Markets believes it could be even higher, reaching eight percent. U.S. recession risks are nowhere in sight, according to our six leading indicators, and other major economies appear to be in favorable positions as well.

• A bipartisan group of legislators and the Biden administration agreed to boost federal infrastructure spending by almost $600 billion over eight years. The deal faces an uncertain path to approval as House progressives—concerned about losing negotiating leverage—are threatening to vote against the measure unless accompanied by additional legislation.

• Fed speakers continue to discuss transitory inflation, although there is a growing divide between members who put the emphasis on “transitory” and those who stress “inflation.”

Further Afield 

• Another wave of COVID-19 is sweeping through the UK, and with a lag of two months has reached continental Europe. With vaccination rollouts in the UK and Europe progressing, we believe hospitalization and fatality rates should remain fairly low. According to RBC Global Asset Management, as public policy has been set in significant part based on hospital capacity, governments are unlikely to lock down or will likely only impose mildly stricter rules.

• With the economic recovery ongoing but potentially vulnerable to new COVID-19 variants and inflation at subdued levels, we continue to believe that the European Central Bank will lag other major central banks in reducing monetary stimulus.

• Japan’s tax revenue is expected to reach an all-time high in FY2020 (which ended in March) and likely exceeded 60 trillion yen, according to a Reuters report. The revenue increase is due largely to the boost to corporate profits from solid U.S. and Chinese economic recoveries.

• In the Monetary Authority of Singapore (MAS) annual report, the central bank highlighted that a firmer global recovery is likely in H2 2021 with the U.S. and China witnessing strong rebounds, and barring any external macro setback, Singapore’s GDP growth could exceed the 4%–6% forecast range.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman