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Views as of October 2, 2026
Market & Portfolio Highlights
- Market Trends: Global equities remain supported by strong earnings growth and broader participation across sectors and companies. Meanwhile, energy price volatility, resilient economic conditions and tighter monetary policy continue to influence markets and inflation expectations.
- Asset Class Views: TDAM maintains a constructive view on equities and continues to see opportunities across global markets. Fixed income offers resilient income and diversification benefits, while selective positioning remains important given tight credit spreads.
- Key Takeaways: Higher interest rates continue to enhance the income potential of bonds, while commodities, and alternative assets can help strengthen portfolio resilience amid ongoing geopolitical and economic uncertainty. Maintaining a balanced, diversified portfolio remains important in the current market environment.
Views Provided by the TDAM Client Portfolio Management team
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Equities
- Elevated oil and refined product prices are supporting earnings and cash flows across the Energy sector, reinforcing its role as an important contributor to equity market returns
- Higher energy costs act as a tax on consumers and businesses, increasing transportation, manufacturing, and operating expenses while reducing discretionary spending power
- Energy price inflation may complicate central bank efforts to ease monetary policy, potentially weighing on broader economic growth and equity valuations
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Fixed Income
- Government bond yields continued their climb to levels flashing: Income opportunity
- Geopolitical tensions, elevated government and corporate debt issuance (including artificial intelligence (AI)-related spending) continued to pressure bond yields higher
- The U.S Federal Reserve's (the Fed) September rate hike reinforced inflation-fighting credibility, improving the risk-reward for duration and core fixed income
- Yield without the reach: Investment grade bonds deliver compelling income without reaching for risk
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Private Markets
- The recently held Canada Investment Summit reinforced the importance of private capital in supporting energy, digital and transportation infrastructure
- With an estimated US$106 trillion of infrastructure investment required globally by 2040, societal needs continue to exceed government funding capacity
- Given the rise in bond yields, private credit spreads remain stable, leading to attractive all-in interest rates generated by mortgage and private debt funds
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Asset Allocation
- Historically, Brent crude and U.S. 10-year Treasury yields moved closely together, reflecting inflation expectations and required investor compensation.
- In recent years, that relationship weakened due to factors such as excess oil supply and broader disinflationary trends
- Today, the key issue is that rising oil prices are pushing bond yields higher. When Brent exceeds $90 and the 10-year nears 5%, markets begin pricing higher inflation and borrowing costs, creating headwinds for long-duration bonds and growth assets.
TD Wealth Asset Allocation Committee Strategic Portfolio Positioning
The following outlines the WAAC’s views over a 12–18 month horizon.
- Strong earnings growth continues to support equity markets, with participation broadening beyond AI-driven sectors and into a wider range of industries, reinforcing a constructive outlook despite potential volatility.
- While energy-related inflation risks remain a concern, bonds continue to offer attractive income and portfolio diversification benefits, particularly as global inflation expectations stabilize.
- The WAAC remains positive on Private Markets and Alternatives due to their ability to enhance diversification, provide resilient income streams, and capitalize on opportunities created by ongoing repricing across private markets.
Core Asset Class Allocations
Asset Class Views and Outlook
The Canadian government continues its push to implement pro-investment policies through the recently announced "Productivity Mega Deduction" and efforts to streamline project permitting. However, U.S. trade remains a source of uncertainty. 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 activity and its property market, but its export oriented sectors have been robust.
Renewed global energy price volatility is drawing the BoC's attention to upside risks to inflation. While domestic policy remains 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 earnings and solid fundamentals. AI-related capital expenditure (CapEx) and M&A activity continue to drive elevated issuance, raising investor price sensitivity. Thus far, the heavy primary issuance has had a greater impact on yields than on spreads, but it has limited any spread compression and widened risk premiums for AI-related sectors.
As developed market central banks raise policy rates, investors' inflation concerns are expected to stabilize. This can help anchor or even reduce volatility of global long bond yields. This creates attractive income generating opportunities, net of currency hedges, for Canadian investors in select markets.
Emerging market government bonds have outperformed recently, and yields relative to developed market peers now appear fair to rich across many countries. Returns may also face headwinds from currency volatility amid the the Fed's interest rate hikes to combat inflation. Even so, we continue to see opportunities in select countries with attractive income levels, particularly in Latin America and Africa.
Fundamentals remain supportive and defaults low, but spreads near cycle tights provide limited compensation for downside risks tied to geopolitics, private credit dynamics, and rising policy rates that could create more restrictive lending conditions. As a result, we remain neutral and favour the higher quality portion of the sector.
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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