The Harbour Group of RBC Dominion Securities All for One: You TM

Transcription

1 RBC Dominion Securities Inc. The Harbour Group of RBC Dominion Securities All for One: You TM October 2018 Conference Call 10 October, 2018

2 So Far, October Living Up To Its Bad Reputation 1. NAFTA a done deal, but trade still top of mind USMCA clears Bank of Canada to raise rates and CAD to rise, while global tariff impact still unknown. 2. U.S. taking a breather off new highs Recession indicators remain benign despite the cycle being among the longest on record. Sharp rise in bond yields has given investors pause 3. Canadian and global markets continue to lag the U.S. U.S. market is an outlier in performance and technology weighting, but FANG dominance is fading. Canadian market fails to react to recent good news 4. Bond Yields are breaking out to new highs Rising interest rates have weighed on fixed income returns. We think yields are rising for the right reasons and expect further interest rate increases from central banks. 5. Studying for the mid-term (elections!) Coming U.S. elections will take centre stage this fall. A win for Democrats ups the ante for Trump, market impact less clear. Source: RBC Wealth Management 2 October 2018 Conference Call

3 NAFTA a done deal, but trade still top of mind 3 October 2018 Conference Call

4 USMCA lifts uncertainty, but little broad economic impact 4 October 2018 Conference Call

5 Auto tariffs would pose a significant risk 5 October 2018 Conference Call

6 U.S. taking a breather off new highs 6 October 2018 Conference Call

7 Old age doesn t kill bull markets, but recessions do Source: U.S. Federal Reserve 7 October 2018 Conference Call

8 Economy is late cycle but no imminent recession seen 8 October 2018 Conference Call

9 Deregulation provides further support to business All of the focus has been on tax cuts, but material progress has been made on deregulation, with the biggest push to smaller government since the Reagan era. Number of pages published per year in the U.S. Federal Register (thousands) Regulatory reversal? Reagan small government Obama big government Democratic Republican Trump dereg Note: The Federal Register publishes new federal agency regulations, proposed rules and public notices, executive orders, proclamations and other presidential documents. Different colors used to indicate the party in control of the White House. Source: U.S. National Archives, RBC GAM 9 October 2018 Conference Call

10 Canadian and global markets continue to lag the U.S. 10 October 2018 Conference Call

11 Not All About FANG Anymore Technology leadership has begun to fade, with more defensive sectors coming into favour. 11 October 2018 Conference Call

12 TSX cheapest vs. S&P 500 in 15 years! While valuation is not a short term catalyst, we have learned that undervalued assets tend to perform well over time. Source: TD Securities 12 October 2018 Conference Call

13 Seeing Opportunities In Emerging Markets Emerging market performance has lagged this year, pushing valuations to the bottom of RBC GAM s fair value bands, which we see as an opportunity. 13 October 2018 Conference Call

14 Bond Yields are breaking out to new highs 14 October 2018 Conference Call

15 At long last, interest rates are rising With central banks in Canada and the U.S. raising rates on a regular basis, bond markets have seen yields drift higher (and prices lower). 15 October 2018 Conference Call

16 as diversification shines through with preferred shares leading the way Few fixed income sectors have been able to avoid the pressure from rising yields, leading this portion of the portfolio to drag on return. High quality fixed income is still required as a ballast to equity volatility, but returns will remain under pressure so long as rates are trending upward. 16 October 2018 Conference Call

17 Studying for the mid-term (elections!) 17 October 2018 Conference Call

18 S&P 500 has a great track record-post mid-terms Investors are likely feeling apprehensive going into the mid-term elections as Democrats look to have the upper hand in the House of Representatives. History shows that markets may wobble going into the vote, but have performed strongly in the six months afterward 18 October 2018 Conference Call

19 and a stellar batting average! 19 October 2018 Conference Call

20 What about impeachment? If the Democrats win the House, talk will immediately shift to impeachment, but it remains to be seen if the Senate will have enough votes. The limited sample set we have on this process suggests stock returns were largely a function of the underlying environment, which was already challenged in the 1970s, and very strong in the 1990s. 20 October 2018 Conference Call

21 In Summary The U.S. market continues to lead the world in return, but a sudden rise in bond yields has given investors pause. We believe yields are rising for the right reasons, such as stronger economic growth and reasonable inflation. We continue to believe an overheating of the economy is a larger risk than imminent recession, as recession indicators are still benign. The Q3 earnings season will be watched carefully to see if earnings growth lives up to expectations. The global markets continue to lag the U.S. but that may change if investors turn away from growth stocks. The mid-term elections may give investors jitters if there is a change of control in congress, but historically these elections have not posed a problem for markets. 21 October 2018 Conference Call

22 Disclaimer There are many opportunities and solutions available to assist you in meeting your investment and estate planning goals. However, because of the complexity of integrating your corporate and personal goals, considering the different tax systems, it is essential that you involve the appropriate professionals in order to maximize these opportunities and accomplish your goals in the most tax-effective manner. 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. Registered trademarks of Royal Bank of Canada. Used under licence Royal Bank of Canada. All rights reserved. 22 October 2018 Conference Call