Royal Bank of Canada (TSX: RY) is up about 20% in the past four months and recently hit a new record high. Investors who missed the bounce off the April tariff rout are wondering if RY stock is still good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on total returns.
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Royal Bank share price
Royal Bank trades near $185 per share at the time of writing, compared to $153 in April. The stock has been on an upward trend since the fall of 2023, when it traded around $108 at the bottom of the extended pullback caused by interest rate hikes at the Bank of Canada and the U.S. Federal Reserve.
Bank stocks fell through most of 2022 and 2023 as investors assumed the central banks would have to drive the economy into a recession to get inflation under control. Rate cuts successfully brought inflation back within the target range, and the feared recession never materialized, likely due to high pandemic savings.
As soon as the central banks signalled they were done raising rates near the end of 2023, investors started to move back into bank stocks. The rally picked up steam in the second half of 2024 when the Bank of Canada and the U.S. Federal Reserve reduced interest rates to navigate a soft landing for the economy.
In 2025, the story is all about U.S. tariffs and trade negotiations. Royal Bank’s share price fell from $178 at the end of January to $153 in April amid concerns that U.S. tariffs will drive the American and global economies into a recession. The rebound over the past few months suggests that investors think inflation will remain in check and trade deals will not sink the economy.
Risks
Yields on Canadian government bonds recently hit new 2025 highs. This is going to put pressure on Royal Bank and its peers to raise rates offered on mortgage loans. Roughly two million Canadian residential mortgages are coming due in 2025 and 2026. Most of these loans were issued during the pandemic when rates were much lower than they are today.
If the economy goes into a meaningful recession and unemployment spikes while loan rates are still high, households with too much debt will struggle and mortgage defaults could soar. At the moment, this scenario is not reflected in the share prices of the Canadian banks.
Opportunity
Royal Bank has the financial clout to compete for the best customers who need to renew their mortgages. The company also has the financial flexibility to invest heavily in AI and other technologies to make its operations more efficient.
Royal Bank’s purchase of HSBC Canada in 2024 added a portfolio of high-net-worth clients and provided an expanded platform to offer commercial and wealth management clients international services. The HSBC Canada deal is also contributing to revenue and earnings growth.
Royal Bank maintains a strong capital position. This can be used to make additional strategic acquisitions or ride out turbulence if the economy tanks.
Time to buy?
Royal Bank is very profitable and the industry giant in the Canadian financial sector, so it deserves to be part of a diversified buy-and-hold portfolio. That being said, the stock has had a stellar run and the broader market is likely due for a pullback in the near term, so I wouldn’t back up the truck today.
A better entry point should emerge in the coming months.
