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Dec 15, 2020

Buoyed by ultra-low interest rates and fiscal stimulus, financial markets calmed and stocks rose to record levels as economic normalization drew closer and the recovery progressed.


  • The pandemic remains the key challenge for economies as we approach the New Year, with case counts and fatalities reaching near record levels.
  • Tighter restrictions to combat the virus may lead to some economic slippage at the end of 2020, but there are reasons to be optimistic.
  • The economic recovery has been exceeding expectations, vaccine developments are promising and markets have responded positively to the outcome of the U.S. presidential election.
  • Although the economy may encounter hurdles in the very near term, our economic-growth forecasts for 2021 have featured more upgrades than downgrades and they are now modestly above the consensus.

RBC GAM GDP forecast for developed markets

RBC GAM GDP forecast for developed markets

Source: RBC GAM

Fixed Income

  • Central bankers have expressed a commitment to keeping short-term interest rates extremely low to stimulate economies and financial markets even as the recovery gains traction.
  • Longer-term bond yields have a bit more room to rise, but the scope for increases is limited by secular pressures such as aging demographics, slowing population growth and an increased desire for saving versus spending.
  • Our new modelling forecasts that sovereign bond yields everywhere will drift just slightly higher over the next year, acting as a modest headwind to total returns for bondholders.

U.S. 10-year T-Bond yield

Equilibrium range

U.S. 10-year T-Bond yield

Note: As of November 30, 2020. Source: RBC GAM, RBC CM

Equity Markets

  • Stocks surged from their March lows due to a combination of massive stimulus, a gradual reopening of economies and, more recently, the promise of imminent vaccines.
  • We recognize that optimism is elevated and, while stocks may be expensive by some measures, investors are paying up for a recovery in earnings that is just beginning.
  • The equity-market rally has broadened from a handful of U.S. mega-cap technology stocks to a much larger base of companies, industries and regions that are more economically sensitive.
  • With the economy entering a period of normalization supported by low interest rates and ample fiscal stimulus, stocks continue to offer superior return potential versus fixed income. As a result, we added 2.5 percentage points to our equity allocation during the quarter, sourced from fixed income.

Major indices’ price changes

Since December 31, 2019

Major indices’ price changes

Note: As of November 30, 2020. Chart represents price changes in major indices from a December 31, 2019 starting point. Source: Bloomberg, RBC GAM

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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.

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© RBC Global Asset Management Inc. 2020
Publication date: (December 15, 2020)