From wars overseas to political uncertainty and rising household costs at home, Canadians have plenty to worry about. Philip Petursson, however, says investors shouldn’t let the headlines dictate their financial decisions.
“First, avoid overreacting to the headlines,” the chief investment strategist at IG Wealth Management told the Miner and News following a recent presentation in Kenora. “That’s a lesson that spans history.”
Petursson, who also serves as lead portfolio manager for IG Wealth Management’s iProfile portfolios, regularly travels across Canada speaking with clients about financial markets and the economy.
Lately — and not long after he made a stop in town — many of the questions he’s fielded have been driven by anxiety surrounding politics and geopolitical conflicts, and what those events could mean for their investments.
Petursson’s message is that while those events can have economic consequences, investors should be careful not to assume unsettling news will translate into lasting trouble for financial markets.
“Our message is actually, this is noise, and there’s always noise like this,” he said.
Markets over the longer term tend to be driven more by corporate earnings, he said.
“As long as corporate profits remain intact and companies continue to deliver on growth, then the markets are rewarded with higher stock prices.”
While Petursson described the Canadian economy over the past year to year-and-a-half as “lacklustre,” he said he is beginning to see signs of improvement. He believes communities like Kenora could be particularly well positioned.
Petursson said he has noticed encouraging economic activity during visits to communities across the northwest, such as nearby Thunder Bay.
“The economic situation there actually seems to be growing faster than other areas of the country,” he said.
Petursson pointed to rising resource prices and the potential for increased investment in northern resource development.
He stopped short of describing it as a mining boom, but said continued development could create economic opportunities across the region.
“I think it creates an optimistic outlook for the future as we continue to develop the North in terms of resource development,” he said. “That’s going to be really good for these communities.”
Nationally, Petursson said retail sales and month-over-month gross domestic product growth have shown signs of improvement. He characterized the labour market as neither particularly strong nor particularly weak.
“To us, it looks like Canada might be coming out of this stagnation and starting to participate in the growth that we’re seeing in other areas around the world,” he said.
But that improving outlook doesn’t mean household finances are getting easier.
Petursson said food and energy remain two of the biggest areas where Canadians are feeling inflationary pressure, while homeowners renewing mortgages are also dealing with higher borrowing costs.
“Anyone renewing a mortgage today, you’re paying more for it, you’re paying more at the grocery store, you’re paying more at the gas tank,” he said.
While wages have also risen, Petursson said households continue to face competing pressures as they decide where their money goes.
Inflation is also central to where Petursson believes interest rates could be headed.
He said IG’s modelling suggests inflation could remain around three per cent or higher over the coming six months, with higher oil and other commodity prices among the contributing factors.
Petursson expects the Bank of Canada will have to balance controlling inflation with avoiding unnecessary damage to economic growth, and said his outlook is for interest rates to move higher over time.
“They’re really kind of driving down a very, very narrow road here and trying to get it right,” he said.
Petursson also said geopolitical conflicts can create seemingly contradictory effects for Canadians.
Disruptions affecting global oil supplies, for example, can mean higher prices at the pump and increased costs for diesel and heating fuel. At the same time, higher oil prices can benefit Canadian energy producers and support the Canadian stock market.
On the broader investment front, Petursson said corporate profit growth continues to provide opportunities in equity markets. IG remains positive on markets outside the United States as well, including Canada, international markets and emerging markets, he said.
Fixed-income investments present different challenges. Higher yields can make bonds attractive, but rising yields also push existing bond prices lower and can weigh on overall returns.
For the average investor, however, Petursson said following every daily market movement is less important than keeping sight of a larger financial plan.
“The markets are only one part of it,” he said.
Petursson pointed to tax, insurance, estate and investment planning as pieces of the broader financial picture.
“If you’re a long-term investor, the day-to-day of the market shouldn’t mean much,” he said. “It’s how we’re progressing towards our longer-term goals.”
People approaching or already in retirement are not necessarily telling him they are unprepared financially, Petursson added. Instead, much of the concern he hears comes from uncertainty about what is happening around them and what it could mean for their finances.
“The political sphere can be quite unsettling,” he said.
Petursson said those concerns come up frequently as he travels across the country, particularly when people return from holidays, pay closer attention to the news, and wonder what the latest headlines could mean for their financial plans.
His advice is to adjust when circumstances genuinely call for it, rather than letting each new headline change the course.
“If we need to make tweaks along the way, let’s do that,” Petursson said, “but let’s not derail the process because of one headline.”
