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 May 27, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,749	2.7%	-2.2%	4.5%
S&P 500	4,158	6.6%	-12.8%	-1.1%
NASDAQ	12,131	6.8%	-22.5%	-11.8%
Euro Stoxx 50	3,809	4.2%	-11.4%	6.4%
Hang Seng	20,697	-0.1%	-11.5%	-27.5%

Source: Bloomberg, RBC Wealth Management

• TSX finished higher Friday, just off best levels. Most sectors higher led by tech, real estate, energy and consumer discretionary with utilities weaker and health care the outsized decliner weighed by cannabis names. Canadian equities ended higher for a sixth straight session as TSX posted a 2.7% weekly gain.

• US equities were higher in quiet Friday trading, ending best levels. Major indices notched weekly gains after a seven-week down streak for the S&P (and eight weeks down for the Dow). Growth outperformed with FANMAG group broadly higher.

• Market continued to bounce on Friday, but unclear how much traction this will have (S&P has already seen five multiday rallies of 3%+ evaporate since the January all-time high). Still a lot of focus on contrarian buy signals from very depressed sentiment and positioning indicators. Other tailwinds included peak inflation and peak Fed narratives with the focus on a decline in break-evens and a positive spin around some softening of high-frequency indicators.

• From a valuation perspective, the S&P 500 has declined materially thus far this year with the 2022 P/E ratio falling to 17.3x currently from 21.3x. This 19% valuation decline has occurred largely as earnings expectations have surprisingly held steady throughout the year. The real culprits behind this re-rating lower likely include rising geopolitical uncertainties around the world, inflation that has accelerated to multi-decade highs, and a Fed that is attempting to tame said inflation despite an unprecedented starting point in the sense that interest rates are so far behind the inflationary curve.

• U.S. markets are closed today (Monday) for the Memorial Day holiday.

 

Economy

Canada

• Retail sales fell short of expectations in March with total sales coming in virtually unchanged relative to February’s levels, according to Statistics Canada.

• The toll inflation is having on consumers’ purchasing power is evident in the sales volume figures which declined by 1% during the period. Statistics Canada’s preliminary estimate indicates retail sales rebounded 0.8% in April; however, while inflation remains elevated, we think the volume figures are likely to be underwhelming.

U.S.

• The U.S. economy is consumption driven, with just under 70 percent of U.S. gross domestic product directly attributable to personal consumption. By most measures, the U.S. consumer remains in good financial shape. Unemployment is near record low levels, average hourly earnings are at their highest levels in nominal terms, and with two job openings for every unemployed worker, prospects for continued wage strength appear robust.

• As we have highlighted in the past, while risks of recession are present and may increase in the following months none of the indicators in our recession scorecard indicate a likely near-term GDP contraction.

Further Afield

• UK Chancellor of the Exchequer Rishi Sunak announced a £15 billion fiscal package earlier today to support low-income households and pensioners amid the unfolding cost-of-living crisis. The fiscal measures will be partly funded by a windfall tax, named the Energy Profits Levy, on the “extraordinary profits” made in the UK by oil and gas companies.

• The 25% surcharge on Energy sector profits related to UK projects is expected to raise around £5 billion in its first 12 months, according to the HM Treasury.

• In the euro area, May PMIs pointed to the services sector remaining strong thanks to continued reopening effects, while the manufacturing sector suffers from supply chain disruptions and weakening demand. Both indicators remain firmly in expansion territory for now.

• China Premier Li Keqiang held an emergency meeting with thousands of representatives from local government, state-owned companies, and financial firms. Premier Li outlined 33 support measures to help businesses, including more than US$21 billion of additional tax reductions.

• Shanghai, one of China’s largest and most economically relevant port cities will begin to lift lockdown measures for residents in lower-risk areas beginning on Wednesday.

 

Notes About Companies in Model Portfolio

• Royal Bank of Canada (RY) reported on Thursday net income of $4.3 billion for the quarter ended April 30, 2022, up $238 million or 6% from the prior year, with strong diluted EPS growth of 7% over the same period. Compared to last quarter, net income was up $158 million or 4% with higher results in Personal & Commercial Banking, Corporate Support, Insurance and Investor & Treasury Services, partially offset by lower results in Capital Markets and Wealth Management.

• TD Bank Group (TD) reported second quarter 2022 results on Thursday. Reported earnings were $3.8 billion, up 3% compared with the second quarter last year, and adjusted earnings were $3.7 billion, down 2%.

 

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

 

Regards,

Shiuman