IG Wealth 2025 market outlook keeps eye on ‘pendulum of valuation’

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This article was published 07/01/2025 (444 days ago), so information in it may no longer be current.

For Philip Petursson, producing a market outlook at the beginning of a new year is not about making bold predictions, it’s about identifying the trends.

The chief investment strategist for Winnipeg-based IG Wealth Management says it is about giving clients and investors some sense of direction. (After all, the markets don’t pause and then start afresh with the calendar change.)

Maybe the headline point from his report — 2025 Market Outlook: Navigating the New, New Normal — is “a fixed-income environment that boasts characteristics of higher yields that favour the fixed-income investor.”

Petursson and his team are bullish on economic growth in the global economy, with some obvious regional differences.

Whereas the 23 per cent growth in the S&P 500 last year was characterized by a high multiple, along with strong corporate profits, Petursson believes in 2025 those profits will remain strong but equity valuations will be much more modest.

One dynamic he expects to be in play concerns the fact that with long-term bond rates above four per cent, it will effectively serve to rein in inflated stock prices.

As such, Petursson said: “We do think that a slight over-weight position in bonds for 2025 will serve investors well.”

Betting on bonds is not the sexy play when high-growth tech and AI stocks are so distracting, but it could be said it’s on-brand for IG Wealth.

“Our approach is not trying to swing for fences,” Petursson said in an interview. “I think clients that do that take on undo risk. That is not what we are trying to do as a firm. We believe 100 per cent in the complete financial planning experience and investment returns are just one part that includes tax management, estate planning and proper account structure.

“Taking a more conservative approach is a compliment,” he said. “It is a prudent approach to take.”

After coming off a year where corporate profits grew by seven per cent to eight per cent — but the market was up 23 per cent — it’s not hard to imagine having more modest expectations when it comes to equities investments in 2025.

Petursson said expectations this year are for corporate profits to be the mid-teens (even better than 2024), but his strategic outlook is for total returns on equities to be down around five per cent.

“It is this pendulum of valuation that swings higher than back to normal, then swings higher and back to normal,” he said. “It is a dynamic we have seen over time.”

Even geo-political unrest and the disruptive intentions of the incoming U.S. administration do not alter the outlook of an industry player like Petursson, who has been in the game for more than 30 years.

So even with the economic sabre-rattling and threat of punitive tariffs, Petursson reminds the IG Wealth Management universe that, regardless of what they say and what the expectations may be, new U.S. administrations rarely actually move the market.

In the case of president-elect Donald Trump and his threats of imposing 25 per cent tariffs on all Canadian goods entering the U.S., Petursson and his IG Wealth colleagues believe it is most likely just a negotiating tactic.

“He changed the name of NAFTA (calling it the United States-Mexico-Canada Agreement, in effect in 2020) and declared himself to be the best negotiator in the world,” Petursson said.

But if the worst-case scenario were to unfold — that such high tariffs are actually imposed — it could set off a global chain reaction of retaliatory policies. Petursson imagines a knee-jerk deep market correction and central banks around the world cutting interest rates.

“That would be bad for stocks and good for bonds and would likely mean a minor recession in the U.S. and globally,” he said. “We put that as less than a 20 per cent probability.”

Petursson is not in the business of making predictions. If anything, he said, being in the business as long as he has has given him humility.

“The only thing I completely understand is the benefit of diversification and the benefit of time,” he said.

Petursson said the U.S. president-elect gauges his approval rating on the stock market.

“If the stock market is down … he will take the blame and he does not want to do that,” Petursson said. “He will probably do whatever he can to keep the stock market advancing.”

martin.cash@freepress.mb.ca