You are currently viewing the United States website Institutional website. You can change your location here or visit other RBC GAM websites.

Welcome to the RBC Global Asset Management site for Institutional Investors

In order to proceed to the site, please accept our Terms & Conditions.

This RBC Global Asset Management (U.S.) Website is intended for institutional investors only.

For purposes of this Website, the term "Institutional" includes but is not limited to sophisticated non-retail investors such as investment companies, banks, insurance companies, investment advisers, plan sponsors, endowments, government entities, high net worth individuals and those acting on behalf of institutional investors. The Website contains information, material and content about RBC Global Asset Management (collectively, the “Information”).

The Website and the Information are provided for information purposes only and do not constitute an offer, solicitation or invitation to buy or sell a security, any other product or service, or to participate in any particular trading strategy. The Website and the Information are not directed at or intended for use by any person resident or located in any jurisdiction where (1) the distribution of such information or functionality is contrary to the laws of such jurisdiction or (2) such distribution is prohibited without obtaining the necessary licenses and such authorizations have not been obtained. Investment strategies may not be eligible for sale or available to residents of certain countries or certain categories of investors.

The Information is provided without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and does not constitute investment, tax, accounting or legal advice. Recipients are strongly advised to make an independent review with an investment professional and reach their own conclusions regarding the investment merits and risks, legal, credit, tax and accounting aspects of any transactions.

Accept Decline
by  RBC Global Equity teamJ.Richardson Aug 15, 2024

In the midst of the earnings season, what may lie ahead?

Reflecting on the past month, Jeremy Richardson, Senior Portfolio Manager, Global Equities, RBC Global Asset Management (UK) Limited explores;

  1. Better-than-expected results due to margins rather than revenues

  2. Fears for the resilience of the U.S. consumer vs hopes of falling interest rates

  3. Renewed dalliance with AI as demand outstrips supply

  4. Uncertainty caused by elevated inflation continuing to dissipate

Watch time: 4 minutes, 45 seconds

View transcript

Hello, this is Jeremy Richardson for the RBC global equity team here with another update. I'm speaking to you in the midst of the current earnings season. Always an interesting time to hear what companies have to say about what's going on in the world. And we're getting discordant themes coming through this earnings season, the first one we've mentioned is a is a continuity of something we saw last quarter, which is that companies results are tending to come in slightly better than expected, but it's how they're getting that earnings beat that seems to be, preoccupying people's minds.

It's not because of revenues, typically, it's because of margins. And if you asked most investors which one they would prefer, they'd like a bit of both, I'll be honest; because if you've got growing revenues, then it tends to underwrite the margins in the future. If you've got margins without the revenues, then investors inevitably will worry about the sustainability of those profits.

And that's kind of where we are at the moment. The second thing that we're seeing is a tension between fears of the sustainability of the US consumer, who's been so resilient for so long, but now at last show is showing signs of actually fading under the weight of increasing prices, on the one hand, versus the optimism, and hope that interest rates may be roughly near a peak and may begin to fall.

And so, this is actually leading to some somewhat perverse, share price responses on results. In fact, we've seen a number of instances where companies with good results have been greeted with share price falls and others which have been somewhat disappointing. And I've actually seen share prices rise. So it seems to be all about the expectations. And then the final thing to say is this sort of, renewed dalliance with artificial intelligence, which was such a big part of the story earlier this year, and for a moment it looked as though the market was beginning to worry about the level of capital expenditure plans, which were from the large cloud computing companies, which was going to be really creating the revenue opportunities for all the semiconductor, designers and manufacturers. and with that level of concern that maybe the capital expenditure plans may be peaking, it caused a little bit of profit taking in some of these semi stocks, and that has not been terribly helpful for the overall level of the market.

 As you may recall, we've spoken about it before. Narrow market performance really driven by large cap tech stocks, including a lot of these semi companies has been what's been driving the market forward. So any concerns over capital expenditure plans sort of removes one of those, supporting props from the market. Well, as we've gone through a little bit further into the reporting season, more news is beginning to emerge of those capital expenditure plans.

 And it looks as though, at the time of speaking at least, that, there is still more demand than supply, that the cloud computing companies are seeing lots of interest from companies and they're building capacity in order to meet that interest. And that's leading to more revenues for the semiconductors and, many designers and manufacturers. So, a little bit of a relief is creeping into market sentiment at the moment in some of these tech stocks.

 So actually, maybe, some of the fears of the sky falling on our heads, is not actually warranted. I should stress though, that we are only about half way or so through the earnings season. And so, you know, how we navigate things from here, to the end will continue to be of great interest, but that's kind of a snapshot of what we're seeing at the moment.

The broader picture, the 10,000ft view, I think very much remains the same in that the level of overall market uncertainty caused by, elevated inflation last year continues to dissipate. And it is somewhat encouraging that it is fundamentals that we are now once again engaging with and talking about as investors that I think is very much a positive dynamic.

And long may it continue, because the more the fundamentals drive share prices, the more opportunity there will be for fundamental investors such as ourselves. I hope that's been of interest, and I look forward to catching up with you again soon.

Get the latest insights from RBC Global Asset Management.

Disclosure

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.

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 in such information.

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., 2024
document.addEventListener("DOMContentLoaded", function() { let wrapper = document.querySelector('div[data-location="inst-insight-article-additional-resources"]'); if (wrapper) { let liElements = wrapper.querySelectorAll('.link-card-item'); liElements.forEach(function(liElement) { liElement.classList.remove('col-xl-3'); liElement.classList.add('col-xl-4'); }); } })