Listen to Dan Chornous, Chief Investment Officer, RBC Global Asset Management, as he takes a few minutes to share the view of the RBC Investment Strategy Committee regarding current events in the global economy and capital markets.

Summer 2015

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Key Highlights

  • In the U.S., it was a slow start to the 2015 year as a result of a very cold winter, a west coast dock strike and the rising U.S. dollar. But these factors are indefinably non-repeatable. Still, it is going to be a fairly sluggish 2015, generating closer to 2.5% GDP growth for the U.S. This ultimately has a knock on effect for the Canadian economy that is font-end-loaded with the impact of lower oil prices.
  • China’s economic growth has been slower and is expected to come in around 7%. In addition, Europe has also been perpetually growth challenged since the financial crisis, and then has had to deal with the eurozone crisis for the last five or six years. The preconditions for sustainable growth in Europe seem to have moved into place – as a result, the Greece debt crisis is a sideshow.
  • For 2016, we've left our original GDP growth forecasts unchanged: 3% in the United States, and roughly those levels elsewhere in the world.
  • For fixed income markets, the fair value channel that heads higher moving forward shows that rates should be roughly where they are and are not really too low. The real issue is that over the next several years, maybe many years, the fair value band for interest rates continues to rise. As the pain of the financial crisis fades and the pressures of sustained growth move forward, rates should continue to rise. Total returns for bonds over the next year are likely to be in the low single digits.
  • In regards to equity markets, at the end of the financial crisis we were about 45% below world markets’ fair value, but are today only 10% below. In the last few weeks, the stock market has made no net progress, and, as a result, has fallen right back to the middle of its fair value band. It’s reasonable to expect relatively normal to slightly below normal returns combined with normal volatility levels moving forward.
  • In regards to asset mix, over the past 150 years, there is accumulating evidence that re-balancing to prepare for the next long up-cycle during a super-cycle bull market is appropriately proactive. We have been effectively doing this since 2009. Our valuation models would support stocks over bonds. In turn, this is supported by the view that we are in a gradual business cycle upswing, and approaching a period of tighter monetary conditions.

Market Commentary

Daniel Chornous

Chief Investment Officer
RBC Global Asset Management Inc.

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