Chief Investment Strategist shares insights from the first third of the year
Philip Petursson is noticing something when he meets with clients and advisors. The Chief Investment Strategist at IG Wealth Management explains that when markets swing low on news and sentiment, even when they drop into correction territory, clients are staying resilient and avoiding panic. He says that’s held true during the latest US-Israeli war with Iran, even as that conflict has directly impacted individuals’ daily finances through gas prices. Petursson notes that the sheer volume of V-shaped market corrections and recoveries we’ve seen since the COVID-19 pandemic lend themselves to a more positive form of recency bias. Many retail clients now feel that even if the markets hit panic for a time, a sharp recovery will come that they don’t want to miss out on.
Reflecting on the first four months of the year, Petursson noted that those retail investors did have their belief tested somewhat. He explained that, on a macro level, markets have been digesting two key narratives: strong fundamental economic performance in the United States, and the ongoing energy shock tied to the war in Iran. Those dynamics have been seen in equity and fixed income markets, leaving advisors with questions around how to guide their patient clients through turbulent times.
“Now we're wrestling with this, call it duality good economic data, labour markets are still healthy, but there's this overhanging dark cloud of war in Iran,” Petursson says. “The reason why I think the economic data hasn't derailed at this point is because oil prices aren't up enough to really drive spending decisions. It's just incremental. It's costing us, you know, $10 a week, $20 a week, and we don't think about it when it's small like that… As long as that remains true, then you get what we've had [recently], which is war still on, Strait of Hormuz is still closed, but markets are hitting an all-time high.”
Economic resilience under the surface
Looking back four months, Petursson notes that the year began with a lot of economic positivity, especially out of the United States. The Atlanta Fed projected 5.4 per cent Q1 GDP growth, and the first two months saw equity markets reflecting that strength. Q4 earnings came in well, beat rates were higher than average, and there was lots of reason to celebrate. The outbreak of war derailed that positivity on the markets.
Petursson notes, though, that even as the war and its consequent oil shock caused markets to swoon, a lot of underlying economic activity wasn’t impacted. Manufacturing, he says, was on the upswing in the United States and globally. Petursson uses demand for flatbed trucking as an indicator that trade was up globally as well. South Korean exports, which Petursson notes can be a very clean source of trend data for global trade, were also up 48 per cent year over year at the end of March. He notes that this spike in exports came after the significant increase in US import demand ahead of global tariffs announced last year. He believes that pent up demand since the tariffs, strong corporate earnings, and the ongoing impact of US stimulus has driven some of this expansion.
Fixed income challenges
One of the more acute areas of challenge since the outbreak of war with Iran has been fixed income. Petursson explains that markets reacted to the simple math that an oil shock will drive inflation higher, prompting hikes from central banks. US bond investors added that input to the existing reality of a very high fiscal deficit, which adds yield on the longer end of the curve.
Canadian bonds saw some remarkably wide swings in the wake of the war. At the start of 2026, investors were pricing in a roughly 50 per cent chance of one 25 basis point cut this year. Following the outbreak of war that consensus shifted and markets priced in as many as four rate hikes this year. That consensus has moderated somewhat, with markets pricing in one to two hikes in 2026 now.
Petursson believes that some of these swings in fixed income amounted to overreactions. He views the calculus of supply shock induced inflation prompting a rate hike as too simple. The Bank of Canada’s leadership understands economics well enough to see an oil shock as more of a tax, and a factor in inflation that can’t be easily addressed through demand destruction. Moreover, even though the BoC technically only has a mandate to control inflation, Governor Tiff Macklem has made some more dovish statements recently pointing to weakness in Canadian GDP growth and an anaemic labour market. Petursson believes that the BoC is more likely to focus on those signs of weakness rather than supply-induced inflation.
What works now?
While clients may have earned resilience through recent experience, advisors still need to navigate a market fraught with challenges. When fixed income doesn’t work as it should, they may be left seeking new forms of diversification that can help their clients manage these shocks. Petursson argues that in the most recent market events related to the war, it was energy stocks that best offered clients diversified returns. Oil, he says, has been the ideal hedge during a geopolitical event being acutely felt on oil markets.
Some asset managers have begun to call for a more dedicated strategic allocation to broad commodities, arguing that this sleeve can offer returns uncorrelated to stocks or bonds. Petursson believes, though, that pure commodities exposure may not be appropriate for retail clients. Instead, exposure to the TSX and its heavy weighting towards energy, mining, and natural resource production companies can offer Canadian clients much of what they might want from that commodities sleeve, without the liquidity issues or concentration risks that might come with an alts fund.
Just as advisors look for ways to gain advantages for their clients, Petursson believes they can’t lose sight of the macro narratives that clients are still subject to. Even if experience has made these investors more resilient, advisors need to provide appropriate context and comfort.
“You can't dismiss the perception that things can get bad. The war is bad, it adds uncertainty. You need to address that because if you just ignore it, you can be whipsawed based on market volatility,” Petursson says. “At the same time, you can't also ignore the [positive] fundamentals. So you have to manage both sides of it.”
