{{r.fundCode}} {{r.fundName}} {{r.series}} {{r.assetClass}}

You are currently viewing the Canadian website. You can change your location here.

Terms and conditions for Canada

Welcome to the new RBC iShares digital experience.

Find all things ETFs here: investment strategies, products, insights and more.

.hero-subtitle{ width: 80%; } .hero-energy-lines { } @media (max-width: 575.98px) { .hero-energy-lines { background-size: 300% auto; } }
July 7, 2022

In this Q&A with Sarah Riopelle, she looks back at an eventful first half and provides her perspective on what to expect in the markets for the balance of the year.

We've seen a meaningful increase in volatility recently as markets adjust to changes in the economy. What are your expectations for the economy going forward?

Consumers and investors are feeling on edge as extremely high inflation has led to a rapid rise in the cost of living and pushed central banks into an aggressive round of tightening. Price increases have been larger and lasted longer than most experts had predicted due to a variety of headwinds including supply-chain challenges, rapidly changing consumer demands, the war in Ukraine and the lingering impact of the massive monetary and fiscal-stimulus packages deployed during the pandemic.

Central banks are now in a tough position where they need to rein in problematically high inflation at a time when the economy has already begun to slow. The combination of aggressive rate hikes, a commodity-price shock and elevated inflation suggests that the risk of recession is higher than usual.

Moving forward, consensus estimates for growth continue to be ratcheted lower and those for inflation revised higher. Our own forecasts are below consensus for growth and above consensus for inflation. We do think, however, that any recession that comes to pass would not be as severe or damaging as the ones following the global financial crisis and the COVID-19 pandemic.

Weighted average consensus CPI

Note: as of June 2022. Source: Consensus Economics

Now that the U.S. Federal Reserve (Fed) is focused on tackling high inflation, are we seeing signs that their efforts are working? Where do we go from here?

Although there are signs that inflation pressures could be peaking in the near term, the gap between where inflation is and where central banks want it to be is still unacceptably large.

This gap has led to an acceleration in monetary tightening by central banks with the Fed hiking short-term interest rates by an unprecedented 75 basis points in mid-June. Fed Chair Jerome Powell reiterated his commitment to getting inflation back to the 2% level, but the question for investors is how much does the Fed need to raise rates to get inflation under control?

The market is pricing in a fed funds rate of around 3.25% by mid-2023 (we are currently at 1.75%). There is a fair chance that tightening ultimately undershoots current lofty expectations, but it is dependent on when we start to see inflation coming down. At this point, though, the Fed still has a lot of work to do and will likely remain firm on rate hikes until we see the actual inflation readings start to fall.

Implied fed funds rate

Note: as of June 23, 2022. Source: Bloomberg, U.S. Federal Reserve, RBC GAM

How are you positioning your portfolios given the current environment?

The macroeconomic backdrop is highly uncertain, which has led to a larger than usual range of potential outcomes. With the risk of recession rising, we felt that it was prudent to reduce our equity weight in the portfolios. In addition, with much of the valuation risk in bonds alleviated, we believe that bond yields are at levels that should offer some protection against a downturn in equities in a balanced portfolio. With this in mind, we have made two asset-mix changes in June. The first was to move 50 basis points out of cash and into bonds as the U.S. 10-year Treasury yield climbed above 3.0%. Later, as yields rose even further, we moved 100 basis points out of stocks and into bonds.

We are still maintaining a slight overweight in stocks recognizing that the risk premium between stocks and bonds still favours stocks, although the premium has narrowed as bond yields have risen. Our asset mix is now much closer to neutral than it has been at prior points in the cycle.

Global stock market composite

Note: as of June 17, 2022. GDP-weighted average of RBC GAM fair value models for a variety of countries. Fair value estimates are for illustrative purposes only. Corrections are always a possibility and valuations will not limit the risk of damage from systemic shocks. It is not possible to invest directly in an unmanaged index. Source: RBC GAM

Market downturns are painful for everyone. Being aware of how your emotions can impact your investment decisions during volatile periods can help you to avoid making poorly timed changes to your portfolio. It's what you do – or rather what you don't do - during these volatile times that can make all the difference.

Read more insights or listen to latest podcasts from Sarah Riopelle and the Portfolio Solutions team.


This document is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be
reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This document
does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended
to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for
providing such advice. This document is not available for distribution to investors in jurisdictions where such distribution would be

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc.,
RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia)
Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC.

In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by
each provincial and territorial securities commission with which it is registered. In the United States, this document is provided
by RBC Global Asset Management (U.S.) Inc., a federally registered investment adviser. In Europe this document is provided by
RBC Global Asset Management (UK) Limited, which is authorised and regulated by the UK Financial Conduct Authority. In Asia,
this document is provided by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures
Commission (SFC) in Hong Kong.

Additional information about RBC GAM may be found at www.rbcgam.com.

This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where
appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.

Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various
sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied,
is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates
assume no responsibility for any errors or omissions.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such
opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or
acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.
Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount
invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a
prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter
time periods. It is not possible to invest directly in an index.

Some of the statements contained in this document may be considered forward-looking statements which provide current
expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or
events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events
may differ materially from those described in such forward-looking statements as a result of various factors. Before making any
investment decisions, we encourage you to consider all relevant factors carefully.

® / TM Trademark(s) of Royal Bank of Canada. Used under licence.

© RBC Global Asset Management Inc. 2022