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Progress against inflation has ignited both bonds and stocks as the need for additional tightening of monetary policy is removed. While the threat of recession in early 2024 remains as the full force of prior rate hikes feeds through, the next cycle is moving into view. We believe that capital markets are transitioning to reflect a return to optimal inflation and firming growth later next year and doing so with a backdrop of generally attractive valuation levels.


  • Interest rates have surged to their highest in 16 years by mid-2023 and, if they remain elevated, higher borrowing costs could discourage business and consumer spending while making debt-servicing more difficult.

  • Economic data now feeling the pressure of higher interest rates. Global trade is contracting, business expectations are soft, housing activity has plummeted and the labour market is starting to lose momentum, albeit gradually.

  • Although pathways to an economic soft landing are evident and the odds of such an outcome are improving as inflation moderates, we continue to look for mild contraction in the U.S., Canada, the U.K. and the eurozone during the first half of 2024.

RBC GAM GDP forecast for developed markets

Note: As of November 3, 2023. Source: RBC GAM

Fixed Income

  • Yields surged over the past two years, largely restoring a proper level of compensation for fixed-income investors. The scope for lower yields opened up during the fall, setting up one of the most attractive entry points for bond investors in a long time.

  • Many bond markets rallied in November as investors entertained the potential end of tightening and possible easing into next year.

  • Our analysis suggests yields could fall to levels that would deliver mid-to-high single digit total returns over the year ahead as investors receive attractive coupon income in addition to capital gains as yields move lower.

U.S. 10-year T-Bond yield

Equilibrium range

Note: As of November 30, 2023. Source: RBC GAM

Equity Markets

  • A distinguishing characteristic of the 2023 stock-market rally was the narrowness of the advance. The “Magnificent 7,” the seven largest stocks in the S&P 500 by market value, thrived but most stocks lagged the capitalization-weighted index returns significantly.

  • Apart from the capitalization-weighted and Magnificent 7 dominated S&P 500, global equities are not all that expensive and regions outside the U.S. are trading at particularly attractive discounts to their fair value.

  • In our view, earnings expectations for 2024 would be vulnerable if economies fell into recession. A soft landing, though, would see stocks extend their gains with the rally broadening out and potential shifts in leadership to value and small cap stocks.

Major equity market indices

Cumulative price returns indices in USD

Note: As of November 30, 2023. Price returns computed in USD. Source: Bloomberg, RBC GAM

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Date of publication: Dec 21, 2023

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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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