A Quick Recap
Before we dive into 2023, you will likely recall that 2022 was a challenging year in the markets. The inflation spike pushed both bonds and stocks down considerably when they often tend to move in opposite directions. Usually, this helps investors mitigate volatility; however, last year was unique because there was no escaping it.
Since each of our portfolios are expertly constructed and managed, they are designed to maintain a desired level of risk and return potential. Our job is to help you identify your financial objectives and determine how we can best help you achieve them. We believe that once you have your investment plan in place, you’ll be able to see though the market noise and ride out periods of volatility to achieve your financial goals.
At InvestEase, we keep a close eye on the markets for you. But if you’re curious how things are shaping up this year, we wanted to share some of the research and reporting being done at RBC on the current state of the economy and markets.
What’s going on in the economy?
RBC Economics recently published a report(opens new window) discussing the state of Canada’s economy and their forecast for the coming months.
Here are some key highlights:
- The Canadian and US economies have been resilient with strong consumer spending powering growth despite rising interest rates
- Inflation has been running hotter than expected leading the Bank of Canada to recently increase rates. Given persistent inflation, a further rate hike(opens new window) by the Bank of Canada and the Fed is expected for July
- With that said, inflation is slowing (although not as quickly as previously projected). Choked supply chains that caused great economic disruption last year have eased considerably. Energy and agricultural commodity prices are also considerably lower than last year, helping moderate inflation
- A resilient economy has delayed the forecasted economic slowdown, but one is still expected, and it could be “bumpy” as the full impact of interest rate hikes are felt by consumers and businesses
- Additionally, while economic growth remains strong and the unemployment rate hovers at historic lows, cracks are appearing in this otherwise rosy picture with fewer job openings being posted and consumer delinquency rates rising
- A high rate of immigration in Canada is helping fill jobs. Additionally, a growing population (driven by immigration) is keeping overall consumption strong which may help prevent a deep recession if not a slowdown
How have markets been doing?
RBC Wealth Management’s Global Insight(PDF) for June reflects on the current market environment. Here’s a summary of their thoughts on equities and fixed income securities:
Equities: Global equity markets have performed well since they mostly bottomed out last October with global indices once again starting to approach all-time highs. However, this strong performance masks the underlying reality that a lot of performance in these indices can be attributed to a handful of large-cap stocks. Additionally, a recession may start pushing earnings lower and this could impact stock valuations.
Fixed Income: Bond yields are attractive and remain close to their highest level since 2008. With the rate hike cycle coming to a close (although additional hikes are a possibility), bond yields are likely expected to start trending lower which should add support to bond prices.
How should I be managing my investments?
We are in a confusing economic and market environment. Economic growth has been strong, and the labour market remains tight. On the other hand, an economic slowdown or recession looms as the full impact of interest rates hikes starts taking hold.
As shown below, we have experienced uncertainty many times before. Encouragingly, individuals that have remained invested through these volatile periods(opens new window) with a long investment time horizon have earned strong inflation-adjusted returns.
Therefore, our advice for navigating through these volatile periods remains:
- Be diversified so you are not over exposed to risk in any one sector or asset class
- Invest in a systematic manner such as setting up a recurring contribution and take advantage of market volatility through dollar cost averaging
- Remain focused on your financial goals. Market volatility is a natural part of investing. Staying invested through uncertain and volatile periods can help investors avoid attempting to time the market and ultimately miss out on periods of strong market performance
Next month, we will examine the performance and outlook of our portfolios here at InvestEase. In the meantime, should you have any questions about how you should be investing your funds, please don’t hesitate to reach out to our Portfolio Advisors at 1-800-769-2531 or firstname.lastname@example.org.