Looking Back and Looking Forward
2026 started well for investors. Major global equity markets moved higher in the first two months of the year, generally speaking; however, when the United States and Israel began launching strikes on Iran in late February, markets began a leg down.
By quarter-end, the S&P 500 was down 4.6%. In contrast, the S&P/TSX Composite was up 3.3% in Q1, while Europe, Developed Asia, and Emerging Markets were broadly higher in the quarter. The outperformance we saw in 2025 by Rest-of-World markets vs. the U.S. carried over into Q1 of 2026, although that lead shrunk in March as many of Rest-of-World economies are net importers of oil.
In response to the Iranian strikes, oil prices immediately spiked higher, and they’ve remained high. Bond yields have risen, likely reflecting higher inflation expectations because of supply disruptions, not only in energy but also chemicals, fertilizers, aluminum, helium, and other key commodities that come from the Middle East and/or flow through the Strait of Hormuz. Higher oil prices, potentially higher inflation, and higher interest rates have damaged investor confidence, at least in the short term.
The market today is solely focused on events in the Middle East. It gyrates from hour to hour based on the latest headline. Perhaps that will change in coming weeks as companies begin to report Q1 earnings and update their outlooks, but for now, the Middle East conflict is driving the market narrative.
Of course, no one really knows how things will evolve, how long the conflict will last, how it will end, and how lasting the impact will be. Furthermore, it’s very difficult to gauge how global central banks might respond to the competing forces of weaker economic growth vs. higher inflation expectations. In short, there is a heightened level of uncertainty right now, and investing today is especially challenging as a result.
Our Core Model Portfolios
In our Capital Growth models, we remained overweight non-U.S. equities (Canada, EMEA and Emerging Markets) and underweight U.S. equities. This continued to serve us well, as the U.S. equity market underperformed its peers in Q1, just as it did in 2025. After posting a strong January and February, our gold exposures were volatile in March, yet they still produced double-digit returns for the quarter.
Our Income model benefitted from the short-duration and investment-grade nature of our bond holdings, providing some stability as interest rates rose and credit spreads widened in Q1. The Income model also benefitted from the relative stability of high-quality, dividend-paying equities.
While we don’t anticipate any major shifts in our core model portfolios, the situation in the Middle East is evolving quickly. We’ll continue to monitor geopolitical and market developments and respond as needed, mindful that while the short-term may be turbulent, we will not deviate from our long-term focus.