Decode the Markets: Our Current Outlook

Where We Stand: Q1 2026

Every quarter, our investment committee publishes its market outlook. This is the unedited version — the same document our clients receive. No marketing filter. No selective presentation of the data that makes us look prescient. If we're uncertain about something, you'll read the word "uncertain."

Canadian Equities

The TSX Composite enters 2026 with a forward P/E of approximately 14.5x, a modest discount to its 10-year average of 15.8x. Earnings growth expectations for the index sit near 7% for the calendar year, driven primarily by financials and energy — although we view the energy earnings estimates as optimistic given current WCS differential levels and pipeline capacity constraints that continue to weigh on Canadian producers.

Energy and financials — which together comprise roughly 50% of the index — face divergent paths. Canadian banks are well-capitalized with CET1 ratios comfortably above regulatory minimums, and we expect dividend growth in the 4–6% range for the Big Five. Energy, by contrast, remains hostage to global supply decisions largely outside Canadian control. We're selectively positioned in high-quality Canadian industrials and dividend growers while underweighting the overconcentration risk that plagues most domestic portfolios. Our Balanced Growth strategy currently holds 28% in Canadian equities versus the 35–40% weighting typical of competitor balanced mandates.

Small and mid-cap Canadian equities, often overlooked by larger managers, offer pockets of genuine value. Companies with strong balance sheets, pricing power, and domestic revenue streams trade at meaningful discounts to their larger peers. Priya Chandrasekaran's bottom-up research has identified several names in the industrial and technology segments that meet our quality screens — these are detailed in client research notes available through the client portal.

Fixed Income

With the Bank of Canada's overnight rate stabilizing after a cumulative 175 basis points of cuts from the 2024 peak, the yield curve has normalized after a prolonged inversion that lasted roughly 18 months. The front end of the curve now yields approximately 3.25%, while the 10-year Government of Canada bond sits near 3.50% — a positive slope that rewards duration for the first time since mid-2023.

We've extended duration modestly in high-quality portfolios, moving from an average duration of 4.2 years to approximately 5.5 years across our Conservative Income strategy. We continue to favour provincial bonds (particularly Ontario and British Columbia issues) and investment-grade corporate bonds rated BBB+ or higher over Government of Canada issues. The additional spread — currently 85–120 basis points for investment-grade corporates — compensates well for the minimal incremental credit risk in a stable-to-improving economic environment.

One area where we've reduced exposure: high-yield credit. Spreads have compressed to levels that no longer adequately compensate for default risk. At current spreads of roughly 300 basis points over Government of Canada benchmarks, we believe the risk-reward has deteriorated. We'd rather own high-quality corporates with predictable cash flows than reach for yield in an asset class where the downside can be severe and sudden.

Global Equities

U.S. large-cap valuations remain elevated by historical standards, with the S&P 500 trading at roughly 21x forward earnings versus a 25-year average of 16.5x. Concentration risk within the index has intensified — the top ten holdings now represent over 35% of the index's total market capitalization, a level that historically precedes periods of underperformance for cap-weighted strategies relative to equal-weighted alternatives.

International developed markets (EAFE) offer a more attractive entry point at approximately 13.5x forward earnings, with European banks and Japanese industrials presenting specific opportunities. Emerging markets remain a smaller tactical allocation — we see value in select Asian economies with favourable demographics and improving governance, but size the position to reflect the higher political and currency risk.

We maintain global diversification as a structural allocation, not a tactical bet — it reduces correlation with domestic real estate holdings (a common issue for our corporate and high-net-worth clients who often have significant property exposure in Ottawa and the GTA) and provides currency diversification that acts as a natural hedge when the Canadian dollar weakens during global risk-off events. For a deeper look at how we implement global exposure across different risk profiles, see our investment strategies page.

Alternative Assets and Real Assets

For clients whose Investment Policy Statements permit alternative allocations — primarily our corporate and institutional mandates — we maintain modest exposure to infrastructure and real asset strategies. These positions serve a specific purpose: they provide inflation sensitivity and income streams that are less correlated with traditional equity and bond markets. We do not use hedge funds, private equity fund-of-funds, or any structure where we cannot independently verify the underlying holdings and fees. Transparency doesn't stop at the portfolio's edge.

Risk Factors We're Watching

Three things keep us honest — and keep us from becoming overconfident in any single market scenario:

(1) Canadian household debt. Debt-to-disposable-income ratios remain above 180%, among the highest in the G7. Variable-rate mortgage renewals at higher rates continue to pressure consumer spending. A meaningful housing correction — even a 15–20% decline in overheated markets — would ripple through bank earnings, consumer confidence, and domestic GDP. We model this scenario quarterly for every client portfolio.

(2) Geopolitical trade disruption. Canadian exports remain heavily concentrated toward the United States, and protectionist rhetoric in Washington has not abated. Tariff escalation or border disruption affecting the automotive, lumber, or energy sectors would disproportionately impact the TSX. We stress-test portfolios against a scenario where Canadian exports to the U.S. decline 12–15% over a 12-month period.

(3) Commercial real estate repricing. Office vacancy rates in major Canadian cities remain elevated, and capitalization rate expansion has not yet fully reflected the higher interest rate environment. This is directly relevant for clients with direct property exposure, pension funds with real estate allocations, and anyone holding Canadian REIT positions. Our corporate surplus management service specifically addresses how to hedge this exposure within a broader portfolio.

None of these are predictions. They're scenarios we model portfolios against every quarter, using historical drawdown data and Monte Carlo simulations. If you'd like to see how your portfolio performs under each of these stress cases, that's a conversation we're happy to have — reach out to schedule a review.

How We Translate Outlook into Action

A market outlook is only useful if it changes what you actually do. Here's how ours works in practice — and why we believe the process matters at least as much as the conclusions.

Our investment committee meets every Wednesday morning at 8:30 AM. Every meeting produces a one-page summary — the position changes we're making, the rationale behind each change, the size of the adjustment, and the risk factors that could prove us wrong. These summaries are available to clients through the Open Book portal within 24 hours of each meeting. Over the past twelve months, we've published 52 consecutive weekly summaries without missing a single week.

Does your current advisor publish their weekly thinking? We've found that most don't. The question worth asking is: why not? If a firm's investment process is rigorous enough to manage your life savings, it should be rigorous enough to document and share. Transparency isn't a marketing strategy for us — it's an accountability mechanism that forces clearer thinking.

We're a small team — six people, $340 million under management. That means our investment committee includes everyone who touches your money: Marc and Lily Burnaby bring portfolio construction and macro strategy, Derek Fonseca contributes fixed-income expertise and risk modelling, and Priya Chandrasekaran leads equity research and security selection. All four have a vote on every position change. Saoirse Doherty attends every meeting for compliance perspective — she ensures every decision passes regulatory muster before it's executed. Jean-Luc Garnier brings the client-facing view, flagging real-world constraints like upcoming tax events, cash flow needs, or changing client circumstances that should influence timing. No decision gets made in isolation, and no single person's conviction can override the group's analysis.

The result is a market view that accounts for macro positioning, individual security analysis, client-specific constraints, tax implications, and regulatory requirements — all in one room, every week. When we say we're a fiduciary, this is what it looks like in practice: a process designed so that every decision can withstand scrutiny from every angle before your capital is deployed.

This integrated approach is also why our service offerings are structured the way they are — because the team that writes the market outlook is the same team that manages your portfolio. There are no layers between the research and the execution.