The latest U.S. earnings season showed robust participation across sectors, with strong revenue and profit growth beyond the tech giants. While valuations are elevated, fundamentals remain supportive as inflation cools and interest rates are expected to fall.
BNN Bloomberg spoke with Philip Petursson, chief investment strategist at IG Wealth Management, who said investors should expect steady, incremental market gains into 2026, led by quality companies with solid earnings growth.
Key Takeaways
- Roughly 82 per cent of S&P 500 companies beat earnings estimates, with broad participation across sectors.
- Only two of the “Magnificent 7” ranked among the top 100 performers this year, showing wider market strength.
- Valuations are elevated but reasonable given growth in revenues, profits and easing inflation.
- The Fed is expected to cut rates four times by late 2026, potentially bringing the funds rate to three per cent.
- Petursson sees attractive value in Canada, citing strength in oil, gold and banking stocks.
Read the full transcript below:
ANDREW: Okay, so we’re well through earnings season, and our guest says it has generally been pretty strong. Let’s get more from Philip Petursson, chief investment strategist at IG Wealth Management. Philip, great to see you. Thanks for joining us.
PHILIP: Great to be here.
ANDREW: Any big themes emerge for you from the earnings season?
PHILIP: Yeah, the big theme is broad participation. We didn’t see narrow earnings. We saw earnings strength across the board, across the sectors, and it was strong — not only in terms of absolute earnings, but also in where those earnings were coming from, and that’s revenues. So it’s not just cost-cutting or margin expansion, it’s also increasing revenues. That’s a positive sign as we look forward into 2026.
ANDREW: And if we look at the market, the Mag 7 — it hasn’t all gone their way. They don’t top every performance list.
PHILIP: Exactly. In fact, there isn’t a single Mag 7 stock at number one. The first one was Nvidia — we’ll see where it ends up after today — but as of the end of October, Nvidia was the 37th best performer of the year. In the top 100, there were only two Mag 7 stocks: Nvidia and Google. In the next 100, you had three more, and beyond that, a couple of others. So it hasn’t been a story of only the Mag 7 this year. There have been a number of other companies that have performed exceptionally well. It’s just that the market cap weighting has skewed it toward the Mag 7.
ANDREW: Generally, the earnings surprises were around seven per cent for the broad S&P 500 — better than expected — and that’s consistent with historic norms.
PHILIP: It is. But what we also saw was that 82 per cent of companies surprised to the upside, which is higher than historic norms. Historically, you’d have about 70 per cent of companies beat estimates. That’s been trending up in recent years as companies have learned how to manage analyst expectations. But in general, in the last couple of quarters, the earnings surprises have become more consistent, and the absolute size of those surprises has been growing as well.
ANDREW: We didn’t, though, see big jumps in stocks after upside earnings surprises, right?
PHILIP: You didn’t this quarter, and a lot of it was priced in. Expectations coming in were already for significant beats. But we’re looking at this market as not a game of capturing 10 or 20 yards a pass — it’s more a game of inches. Every time a company continues to increase its earnings year over year, it will be rewarded over time. We think the story going forward is going to be one of incremental gains rather than big jumps in the market.
ANDREW: So we’ve got a forward P/E for the U.S. market of about 23 times. You reckon that’s not hugely excessive compared with history?
PHILIP: Yeah, you have to look at it in context. If you only look at valuation, then yes, it looks high. It’s at the top end of the 20-year range for the S&P 500, and we have seen weaker markets following levels like this. But when you match that with strong earnings growth, strong revenue growth and profit margins that continue to climb — and then look forward — the outlook is positive. The Federal Reserve is expected to continue cutting interest rates, and inflation is likely to keep moderating. That’s positive for valuations, not negative.
ANDREW: You think the Fed will have to cut rates — maybe not again this year, but sometime early in 2026?
PHILIP: Yeah, we expect another four cuts between now and the end of September next year. That would take the Fed funds rate to about three per cent. We think that’s a reasonable level if inflation settles around two-and-a-half per cent through 2026. We don’t think the Fed will feel pressure to take it down to two per cent — three per cent seems appropriate.
ANDREW: Maybe we could have a look at the U.S. 10-year bond yield. It spiked a few months ago to around five per cent and has come down since then. One overhang, though, is U.S. government debt — although, interestingly, tariffs are said to help with that.
PHILIP: Well, tariffs will be a small part of it. If you look at the absolute level of the deficit and overall debt, tariffs will make only a tiny dent. But if Trump gets his way and starts sending out $2,000 cheques to Americans, that would wipe out what you’d gain from tariffs and increase deficit spending. We’ll see what happens. In general, tariffs are like robbing Peter to pay Paul — not a good economic policy and certainly not one that reduces the deficit.
If we look at the economy, growth south of the border is running around three per cent, and that’s reasonable. In Canada, as the Bank of Canada points out, it’s going to be a bit weaker. But overall, this suggests we’re in a good environment. There’s a low risk of recession. The Fed will have to cut because the labour market has softened, but we don’t see it turning recessionary with unemployment spiking above five per cent. We don’t think that’s in the cards anytime soon.
ANDREW: What about Canada? Are you seeing value here?
PHILIP: We’re seeing great value in Canada. When we think about asset allocation, we like the U.S., but we like Canada even more. We’re overweight Canada. The economic picture may be softer over the next 12 months, but the market environment is attractive. Oil producers are cheap, gold producers are benefiting from higher prices, and the banks are reasonably valued and generating strong earnings growth. Those three pillars are good for the TSX going forward.
ANDREW: Philip, thank you very much.
PHILIP: Thank you for having me.
ANDREW: That was Philip Petursson, chief investment strategist at IG Wealth Management.
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This BNN Bloomberg summary and transcript of the Nov. 11, 2025 interview with Philip Petursson are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
