A Year for Resolving Uncertainties: IG Wealth Management 2023 Outlook Report
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After a volatile and disappointing 2022, there’s hope on the horizon for the stock and bond markets. That’s according to IG Wealth Management’s recently released annual Market Outlook report. In 2023, investors should look forward to rebounds on several fronts, says Philip Petursson, Chief Investment Strategist for IG Wealth Management. To know where things are headed, we first need to understand the current situation.
“What we saw globally in 2020 and 2021 was a massive injection of cash, and when that happens, one of the natural consequences is higher inflation,” says Petursson, pointing to the programs and subsidies created to help businesses, entrepreneurs and people displaced from the labour force during the pandemic.
However, Petursson is optimistic the exponential price increases of 2022 won’t continue to rise as rapidly and believes there are already indications of an inflation slowdown.
“It’s not inflation that’s going to stick around for years. Think of it like a one-time wave that came, crested and eventually will crash down,” Petursson says. He also proposes that interest rates are nearing a peak, with the benefits of marking a return to yields for fixed-income or bond investors, whose investments paid very little over the past few years.
“We’re seeing interest rates at levels that we haven’t had in 15 to 20 years,” he says. “These act as a guide for what we should expect over the next five to eight years of bond returns. Bonds now are paying a decent income again in the mid-single digits.” This illustrates that government bonds are paying between three-and-a-half to four per cent, corporate bonds paying five or six per cent and high-yield bonds paying close to nine per cent.
After coming out of 2022’s bear market, Petursson says there may be opportunities for investors despite talk of an impending recession.
“All the economic data suggests that we’re likely heading towards a recession. That is the natural outcome of what we went through over the past couple of years. But we believe this isn’t going to be a long recession, it’s going to be much milder,” he says. “The economy went through a party, all this pent-up demand from the COVID lockdowns released all at once, and now we’re just paying for it with a modest economic hangover.”
Petursson notes that equity markets typically react to incoming trends, so lower corporate profits and an economic slowdown have already been factored in.
“The downward pressure that we saw [in 2022] was really the markets pricing in the recession and earnings risk,” he explains, adding that as a result, stock prices are a lot cheaper than their peak in 2021.
“This is a decent environment to reallocate into equities to take advantage of some of the market dislocations or significant price drops,” he suggests, adding that we may be near a trough in terms of stock prices. He also recommends watching market correlations for potential opportunities.
“We’re seeing this breakdown in correlations. We go through these periods where all asset classes move up together and down together and then they break apart and they go on their own,” says Petursson. “That’s what we’re going to see in 2023 because of a valuation gap, but also because of where different markets will be in their own economic cycle. What it means for investors is that you can now start to shift asset allocations to reflect the better opportunities outside of the U.S.”
A dedicated financial advisor can help investors determine where they should shift their asset allocations, in addition to developing a well-rounded financial plan to grow their wealth, save money on taxes, prepare for the future and ensure their loved ones are taken care of.
“Anyone can buy a stock, a mutual fund or an ETF, but that’s not financial planning,” says Petursson. “We spend a lot of time talking about the economy and the markets and bonds and that’s all well and good, but if you don’t have a good financial plan, then you’re not going to hit your goals. That’s where you really need to rely on those experts to take a complete holistic view of your financial situation.”
IG Wealth Management is an industry leader that delivers best-in-class, personalized financial solutions to Canadians. Make an appointment to review or build your financial future with a certified financial planner today. Read the full 2023 Market Outlook Report at https://www.ig.ca/en/insights/2023-outlook-navigating-the-peaks-and-troughs
This article is produced by the Advertising Department of the Winnipeg Free Press, in collaboration with IG Wealth Management