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Market & Portfolio Highlights
- Market Trends: Global growth and corporate fundamentals remain supportive, underpinned by expanding Purchasing Manager's Index (PMI) data, resilient economic activity, improving earnings revisions, and accommodative financial conditions
- Asset Class Views: Equities continue to be supported by earnings growth and broadening market participation, while fixed income continues to offer attractive yields and selective duration opportunities. Private markets remain constructive, backed by improving real estate fundamentals and stable long -term return potential
- Key Takeaway: While artificial intelligence (AI) related investment remains a powerful market theme, investors may want to stay focused on portfolio balance and risk management as leadership continues to evolve across regions and sectors
Views Provided by the TDAM Client Portfolio Management team
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Equities
- Memory stocks have fallen about 30% since June 30, raising concerns that the broader AI trade may have outpaced fundamentals
- While near -term expectations have reset, TDAM remains constructive on memory and other AI beneficiaries, viewing them as essential to the AI infrastructure buildout
- Importantly, hyperscalers continue to increase data - centre spending, reinforcing the view that AI demand remains robust and that recent weakness reflects sentiment, not deteriorating fundamentals
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Fixed Income
- Geopolitically driven market volatility has pushed bond yields higher, improving income opportunities across fixed income
- Historically attractive yield levels provide greater resilience against near -term market fluctuations
- Tight credit spreads reinforce the importance of active management and a focus on quality
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Private Markets
- Investors may consider increasing their allocation to private infrastructure to optimize portfolio mix
- Ongoing demand for essential infrastructure, combined with deglobalization and decarbonization trends, should support strong returns over the near and long -term
- Real estate valuations have stabilized with high - quality assets offering attractive yields
- Private credit strategies continue to generate compelling income enhancement
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Asset Allocation
- The macro backdrop remains supportive, with steady growth, resilient earnings, and labour markets continuing to underpin demand
- While markets appear calm at the index level, the story beneath the surface is different. Low volatility contrasts with rising stock dispersion, signaling wider performance gaps across companies and sectors
- This environment highlights the value of diversification, not reducing risk exposure entirely, but expanding the portfolio’s opportunity set across multiple sources of return
TD Wealth Asset Allocation Committee Strategic Portfolio Positioning
The following outlines the current views over a 12–18 month horizon.
- Global equities remain supported by expanding earnings growth. While AI -related companies continue to lead, broader sector participation is helping sustain market gains and supports a constructive outlook
- Attractive yields continue to support bonds. With the BoC on hold and rates remaining elevated, income is expected to drive returns while providing stability during market volatility
- Private Markets and Alternatives continue to enhance portfolio resilience. Inflation protection, diversified income streams, and improving valuation opportunities support the case for increased 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 U.S. trade negotiations. The S&P TSX Composite Index (TSX) sector mix acts as a diversifier for U.S., & Emerging Markets that are heavily influenced by the Information Technology sector. TSX returns are supported by strong earnings growth combined with shareholder friendly dividend and buyback policies.
U.S. equity returns are driven by earnings growth, particularly in information technology and sectors that benefit from AI spending. Tax policies under the "One Big Beautiful Bill Act," lagging impact of past U.S. Federal Reserve cuts, and the potential for further deregulation offer additional tailwinds. Key sources of volatility include concerns around AI driven disintermediation in the Information Technology Software & Services sector, the trajectory of AI capital expenditure (capex) and funding, and 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 pre-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.
Canadian rates have outperformed recently on softer domestic data, but the BoC remains firmly 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. Overall, we view the CAD as broadly fair valued, with relative currency movements likely to be driven by shifts in global risk sentiment and commodity dynamics.
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