We will take advantage of the summer season to take a break
from our bi-monthly publications, but we remain available.
Highlights
- Our Observations
- Current Economic Outlook
- Our Investment Strategy
Our Observations
recent days, Iran has been hit by a series of Israeli airstrikes targeting military and nuclear sites. Moreover, as is well known, Iran's uranium enrichment program has already been the target of recent U.S. presidents, who in turn bombed Iran's nuclear sites. It is, of course, too early to know the ultimate consequences of this 12-day war between Israel and Iran. With all sides calling for victory, it is unclear whether the fragile ceasefire will be respected.
equity markets are riding on optimism for a resolution to the conflict – oil prices have tumbled about 7%, and inflation in Canada and the U.S. continues to decelerate, providing some stability.
Obviously, current events and hot topics require constant vigilance to react quickly. We are paying close attention.
Current Economic Outlook
The global economy continues to hold up despite the drag from U.S. trade-policy shock. While growth momentum is still poised to downshift, we believe the recent easing of trade tensions has materially reduced the likelihood of more severe outcomes. Consensus forecasts of global real GDP is now projected by Bloomberg to expand by 2.7% in 2025—slower than the 3.0% penciled in earlier this year and below 2024’s 3.3% pace—but still a solid enough rate to underpin a continued increase in corporate earnings.
Global equity markets have staged a brisk recovery from a sharp selloff in April. The MSCI All Country World Index now trades at 18.5x forward 12-month earnings estimates, up from 15.6x at the worst of the correction in early April and comfortably above the 10-year average of 16.5x. Against this valuation backdrop, global profits are forecasted to rise by 7.5% this year and 11.5% in 2026 based on Bloomberg consensus forecasts. While recent signals from the U.S. administration hint at a more conciliatory stance on trade, two upcoming deadlines when temporary tariff suspensions are due to expire—in July and August—could rekindle volatility.
In our view given current valuations, consistent earnings delivery will be crucial to provide fundamental support. Therefore, we would hold equity allocation near strategic targets, with a focus on regional diversification and an “up-inequality” approach. Prioritizing companies with consistent cash flows, durable pricing power, lower debt levels, and/or growing dividends will enhance resilience.
Our Investment Strategy
A casual observer looking at the S&P 500 Index near its all-time high would be forgiven for believing that it was “business as usual” for corporate America. To be fair, after the White House pulled back from ultra-high tariff rates, the U.S. economy has proved resilient for now with few signs of inflation or unemployment picking up. Nevertheless, those signs may well start to appear in the second half of the year if the remaining tariffs start to bite, impacting business and consumer decisions.
Overall, we think the current situation warrants a watchful portfolio investment approach. We believe other regions, with valuations trading at a discount to U.S. equities, provide attractive opportunities to diversify portfolios. Indeed, the U.S. remains a large, vibrant economy with plentiful natural resources; a creative, talented labor force; and cutting-edge technology. We see is no real argument for exiting an economy with those characteristics, particularly since most other leading economies suffer from their own debt and deficit concerns. Remaining exposed to U.S. equities, however, is a far cry from remaining exclusively in U.S. equities. Clearly, there are strong arguments in favor of an internationally diversified equity portfolio.
In these uncertain times, it's important to remember these 5 rules:
- Companies are built to grow
- World Economies will continue to grow despite pitfalls along the way
- Diversification wins over time
- Dividends continue to be paid
- You must stick to your plan through thick and thin
" Investing isn't about avoiding disruption, it's about managing it.”
- Howard Marks, Founder of Oaktree Capital Management
What Howard Marks means is that fluctuations and changes in financial markets are inevitable and that it is wiser and more realistic to anticipate and prepare for them than to try to avoid them at all costs.
The following graph demonstrates the importance of staying invested even in times of disruption.
The best 10 days of the S&P 500 over the past 20 years happened during a crisis
Source: Bloomberg. Based on S&P 500 returns on initial investment of $1000 from January 1, 1995 to May 30, 2025.
In other words, the ability to manage risks and contingencies is essential for success in investing, rather than seeking to invest in a perfectly stable environment at all costs.
As always, we are available to answer your questions.
Have a great summer!
Benoit Legros, B.A.A., CIM, FCSI
Senior Portfolio Manager and Wealth Advisor