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Market & Portfolio Highlights
- Market Trends: Global equity markets remain supported by strong earnings growth and broadening participation across sectors and companies. At the same time, structural forces, including larger fiscal deficits, higher term premiums and stronger demand for capital, are keeping long-term bond yields elevated
- Asset Class Views: Equities remain constructive as market leadership expands beyond mega-cap technology companies. Fixed income offers attractive income and improved return potential, although disciplined security selection remains important amid elevated corporate issuance. Private markets continue to present opportunities through improving real estate fundamentals, essential infrastructure investment and the complementary role of private credit
- Key Takeaway: Artificial intelligence (AI) and data centre investment remain important drivers of earnings and capital spending, but broader market participation and higher bond yields reinforce the value of maintaining a balanced portfolio across equities, fixed income and private markets
Views Provided by the TDAM Client Portfolio Management team
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Equities
- Market leadership broadened in 2026, with gains becoming more evenly distributed across sectors and companies after years of mega-cap technology dominance, benefiting the S&P 500 Equal Weight Index
- Improved market breadth suggests a larger share of stocks are participating in the advance, reducing reliance on a small group of mega-cap names
- The Equal Weight Index's outperformance reflects reduced Technology concentration and greater exposure to value and cyclical sectors
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Fixed Income
- High long-term bond yields have prompted U.S. treasury market intervention, underscoring the attractiveness of current bond yields for investors
- AI hyperscaler corporate debt issuance is introducing new opportunities and risks in the corporate bond market, reinforcing the importance of strong security selection
- Renewed tariffs are weighing on Canada's already subdued growth outlook, where bonds may provide support if growth slows
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Private Markets
- Improving leasing activity across high quality office buildings should deliver enhanced income growth for commercial real estate investors
- Regardless of trade deal outcomes, the essential nature of infrastructure projects and the widening government spending gap should drive attractive returns with the asset class
- Private credit strategies continue to complement public fixed income portfolios to potentially improve total return outcomes
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Asset Allocation
- Structural factors, not just monetary policy, are keeping global bond yields elevated, as larger fiscal deficits, higher term premiums, and stronger capital demand push long-term rates higher
- Higher bond yields raise the hurdle for equities by offering more attractive returns and increasing pressure on valuation multiples
- Higher real yields have materially improved fixed income's outlook, restoring meaningful income and return potential while reducing reliance on equity risk to meet investment objectives
TD Wealth Asset Allocation Committee Strategic Portfolio Positioning
The following outlines the WAAC’s views over a 12–18 month horizon.
- Global equities remain supported by strong earnings growth. AI and data centre investment continue to drive results, while broader earnings participation across sectors is providing additional support for markets
- Attractive yields continue to support bonds. With the Bank of Canada (BoC) expected to remain on hold and yields still elevated, income is anticipated to drive returns while helping cushion portfolio volatility
- Private Markets and Alternatives continue to enhance portfolio resilience. Inflation protection, diversified income streams, and the potential for attractive long-term returns support the case for potentially increasing allocations
Core Asset Class Allocations
Asset Class Views and Outlook
Canadian economic growth is expected to remain low, but positive, as a more pro investment federal government helps offset uncertainty around trade with the U.S. The S&P TSX Composite Index (TSX) sector mix acts as a diversifier for U.S. and emerging markets that are heavily influenced by the Information Technology sector. TSX returns are supported by strong earnings growth, balance sheets, and shareholder friendly dividend and buyback policies.
Year-to-date U.S. equity returns have been driven by very strong earnings growth, whereas multiples have contracted. While IT growth remains robust, there has been broader acceleration across sectors and in small caps. Tax policies under the "One Big Beautiful Bill Act" and the potential for further deregulation offer additional tailwinds. Key sources of volatility include shifts in sentiment regarding AI spending and returns versus the impact it could have on future earnings, as well as ongoing geopolitical uncertainty.
International equities may lag as earnings growth, while positive, remains lower than in other markets. European earnings could face additional headwinds if energy costs remain above pro-conflict levels. The Japanese market has rallied on the back of corporate reform, a more pro-growth government, and benefits from AI spending, but there may be volatility as the Bank of Japan has raised rates.
Emerging Markets provide exposure to technology companies with strong earnings growth potential, driven by AI spending. China continues to face challenges with weak domestic consumption and its property market.
Despite U.S.-Canada trade-related uncertainties, a resilient Canadian economy gives the BoC cover to remain patient and on hold. With domestic policy largely anchored, further moves in yields are likely to be driven by U.S. rates and global term-premium developments.
Spreads remain near cycle tights amid resilient fundamentals. While AI-related capex and M&A activity continue to drive elevated issuance, investors are becoming more price sensitive, particularly toward frequent issuers, limiting further spread compression near term for AI-related sectors.
A resilient U.S. economy continues to support a higher-for-longer rate environment. Uncertainty surrounding future central bank reaction functions, rising global term premia, and higher Japanese government bond yields, are expected to contribute to elevated volatility across developed market bond markets.
Emerging market local currency government bonds offer attractive income, however, total return prospects vary by region. We favour short-maturity bonds or currency positions in select Latin American, eastern European and African countries, where inflation-adjusted yields are attractive. In contrast, we remain cautious on Asian countries where yields are lower and external risks are elevated.
Fundamentals remain supportive and defaults low, but spreads near cycle tights provide limited compensation for downside risks tied to geopolitics, private credit dynamics, and broader market volatility. We remain neutral given tight valuations.
Commercial mortgages continue to provide accretive income while insulating investor returns from the increased volatility in interest rates.
We believe most value adjustments in Canadian commercial real estate are complete. Office occupancy (especially in Toronto) has begun to improve as large users mandate returns to office. Despite U.S. tariff policy volatility, Canada's industrial market remains healthy. Poor condominium markets and lower immigration have temporarily pressured residential rental rates in Toronto and Vancouver. Long-term multi-unit residentials will likely see strong rental growth due to structural supply-demand imbalance.
Returns are starting to improve globally. U.S. and Asian Pacific markets have seen the capitalization rate stabilizing, while Europe continues to outperform. In Japan, strong office, residential, retail, and hotel fundamentals continue to support rental growth despite rising rates. In Korea, healthy office, industrial, and hotel markets should support stable returns, though higher financing costs are making performance increasingly income-driven.
Infrastructure continues to offer stable returns and lower volatility due to its essential long-term nature. The persistent global infrastructure spending gap remains a key investment driver, reinforcing the need for increased investment. Additionally, accelerating trends such as the electrification of industry and the expansion of digital infrastructure are significantly increasing demand for power generation, energy storage and supporting infrastructure, creating compelling investment opportunities.
Global Private Credit provides premium income through diversified global origination across corporate, real estate, infrastructure, and specialty finance, including middle‑market corporate relationships. TDAM’s robust credit risk infrastructure supports strong governance and disciplined access to attractive risk‑adjusted return opportunities.
High credit quality and global diversification can provide an income ballast in an uncertain economic environment. A robust illiquidity premium can provide a vital income boost in an environment of narrowing public credit spreads. Incremental income and potential capital appreciation from interest rate moderation may provide upside.
Commodities have strengthened amid supply disruptions, particularly in energy, natural gas, and select industrial inputs. Recent gains appear driven more by curtailed supply than excess demand, reinforcing commodities’ role as a portfolio diversifier during periods of geopolitical stress.
Longer-term valuation metrics suggest the USD remains overvalued, supporting a modest underweight positioning. While the USD continues to benefit from safe-haven demand amid ongoing geopolitical uncertainty, upside versus the CAD may be more limited from current levels. Canada’s softer growth outlook and sensitivity to global trade dynamics continue to act as near-term headwinds for the CAD, partially offset by support from elevated energy prices.
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