Should You Target Royal Bank of Canada Ahead of Q2 Results?

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock was down 0.89% in late morning trading on May 23. Shares of Royal Bank have rebounded nicely in April and May, and have climbed 4.5% month over month. Royal Bank is set to release its second quarter results on the morning of May 25.

The Canadian housing market has softened in 2018 due to new regulations, and analysts have projected that banks will likely see growth of mortgage books suffer for the remainder of 2018. Royal Bank actually grew its mortgage book by 6% in the first quarter of 2018. This is unlikely to last, however.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) released its second-quarter results today. The bank managed to beat expectations and posted double-digit growth in net income and adjusted net income from the previous year. CIBC retail banking head Christina Kramer warned that recently-implemented regulations have succeeded in cooling housing markets and could result in an origination decline of 50% in the second half of 2018. This is in spite of CIBC reporting solid mortgage growth in successive earnings.

In spite of these warnings, Royal Bank remains an attractive target for the long term. The pullback in the major metropolitan areas of Toronto and Vancouver could be viewed as healthy considering the decade of growth in these markets. Royal Bank should also see a boost from a very solid U.S. economy and tax reform which was implemented south of the border in late 2017.