August was a month of recovery for several sectors, including the consumer sector, banks, automotive, and retail. This recovery came after Canada witnessed a weak first quarter. U.S. President Donald Trump announced the first round of tariffs on Canada in February. The Bank of Canada slashed the interest rate from 3.25% in December 2024 to 2.75% in March 2024. What followed was a recovery, and Canada’s largest bank by market cap was a barometer of increasing consumer confidence and the country’s resilience to macroeconomic headwinds. The stock of Royal Bank of Canada’s (TSX: RY), also known as RBC, surged more than 12% in August.
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Why RBC stock soared in August
Royal Bank of Canada’s (TSX: RY) stock surged after reporting better-than-expected earnings for the third quarter ended July 31, 2025. Its revenue beat expectations, surging 15.8% year-over-year to $17 billion. Adjusted diluted earnings per share (EPS) increased 18% to $3.84, exceeding the forecast of $3.32 by 15.7%.
What do these numbers show?
RBC has a diversified business model, wherein it earns money from interest and fees it charges for transactional banking services, loans, insurance, wealth management, and capital markets (investment banking). It has operations in Canada, the United States, Europe, Asia, and other countries.
In the second quarter, the bank increased provisions for performing loans, hinting at a higher credit risk.
Let’s take a step back and understand the credit business. As of July 31, 2025, RBC had an earnings asset base of $2 trillion, which comprised personal and commercial loans, assets under management, and capital markets, on which it earned 1.6% net interest. RBC can increase its earnings by increasing its asset base, interest, or both.
What do RBC earnings say about financial trends?
The bank’s earnings shed some light on the key financial trends unraveling in the economy.
On the retail consumer front, consumer spending is growing as credit card loans increased 7% year-over-year, while growth is moderating in mortgages due to underperformance in Ontario, particularly in the Greater Toronto Area. Individuals are investing more in mutual funds as RBC’s wealth management assets increased 14%.
On the institutional front, RBC saw higher fee-based clients investing in mutual funds. However, average commercial loan growth was slower at 6% as clients held back on capital and inventory spend. This segment was particularly affected by weakness in cyclical headwinds in commercial real estate and tariff-sensitive sectors, including manufacturing, transportation, and logistics.
Is this bank stock a buy in the current economic conditions?
RBC’s stock price has surged 84% since October 2023. Its stock price depends on the fair market value of its assets, which are loans and investments. These assets carry credit risk and investment risk. Macro-economic conditions can affect loan growth and consumer confidence, trade tensions can affect RBC’s international operations and foreign exchange risks, and stock market volatility can affect investment assets.
RBC had set aside $1.4 billion in provisions for credit losses in the second quarter as Trump tariff uncertainty increased the risk of recession. In the third quarter, it significantly reduced these provisions by 38% to $881 million, showing an improvement in asset quality.
While the asset quality drives the stock price, interest and fee income drive the dividend.
RBC stock is currently trading at $200, which is near its all-time high of $204.60. If you own the stock, you can hold it for the long term as the bank increases its asset base. If you are looking to buy the stock, it is better to wait for a correction, as it is overbought with a Relative Strength Index (RSI) of 73. RSI looks at the last 14 days’ price momentum to determine if the stock is oversold at below 30 or overbought at above 70. This is a stock to buy on the dip.
