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Economies have demonstrated resilience in the face of restrictive monetary conditions and inflation has now cooled sufficiently to prompt central-bank rate cuts. Investors have embraced this favourable backdrop, with stocks climbing to record levels. Valuations, however, are at a point where further gains are becoming increasingly dependent on lofty expectations being achieved and heightened investor confidence being sustained.

Economy

  • The global economy has managed to withstand higher interest rates and continue to grow, reinforcing our view that a recession can be avoided over the year ahead.  We place the odds at 65% that economies manage a soft landing, with potentially two to five years of further expansion.

  • We forecast annualized growth rates of just under 2% across most developed regions for 2024, mostly a bit above the consensus outlook. For 2025, our growth outlook remains largely the same as a quarter ago and is in line with the consensus.

  • While our outlook is benign, risks related to high interest rates, stubbornly hot inflation and geopolitics are sources of uncertainty.

RBC GAM GDP forecast for developed markets

rbc-gam-gdp-forecast-for-developed-markets

Note: As of May 30, 2024. Source: RBC GAM

Fixed Income

  • Bond yields have risen slightly in the past quarter as investors weighed the possibility that central banks may ease policy at a more gradual pace than previously expected.

  • Tighter monetary conditions and rising fiscal deficits suggest that real interest rates may settle at a higher level on a sustained basis. Adjusting for this, we could conclude that the U.S. 10-year yield is priced for gradual declines over the years ahead as inflation moderates toward the 2% target from just over 3% currently

  • Our view is that fixed income markets offer decent return potential in the mid single digits and with only modest valuation risk over the year ahead, especially in an environment where central banks are actively cutting rates.

U.S. 10-year T-Bond yield

Equilibrium range
us-10-year-t-bond-yield-h5equilibrium-rangeh5

Note: As of May 31, 2024. The 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

Equity Markets

  • Equity markets climbed to new highs in the past quarter, although the biggest gains have been highly concentrated in a small group of mega-cap technology stocks that have benefited from trends in artificial intelligence.

  • Valuations in markets outside of U.S. large-caps are less demanding, meaning global equity markets could offer attractive returns should economic and corporate-profit growth remain positive.

  • A lot of the good news is already priced into the U.S. large-cap equity market and expectations are high. The current combination of strong nominal earnings growth, continued expansion in profit margins and elevated investor confidence is becoming increasingly critical to sustaining the bull market.

Global stock-market composite

Equity-market indexes relative to equilibrium
global-stock-market-composite-h5equity-market-indexes-relative-to-equilibriumh5

Note: As of May 31, 2024. Source: RBC GAM

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Disclosure

Date of publication: Jun 24, 2024

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 prohibited.

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 RBC Indigo Asset Management Inc. which are separate, but affiliated subsidiaries of RBC.

In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) and/or RBC Indigo Asset Management Inc., each of 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.

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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 such 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.

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© RBC Global Asset Management Inc. 2024