Canadian equities have demonstrated relative resilience year-to-date as they benefit from the S&P/TSX Composite Index high exposure to Energy. Although gold is an important contributor to index earnings growth, most other sectors are expected to be up year-over-year and Energy estimates could be revised higher if oil prices remain elevated. While domestic economic growth remains modest, Canadian equity valuations remain reasonable.

U.S. equities experienced some pressure over Q1 2026, which has led to a more defensive market tilt. Concerns around Artificial Intelligence (AI) disintermediation, the pace of interest rate cuts being pushed out, and uncertainty related to the escalating geopolitical environment have weighed on sentiment. That said, S&P 500 Index earnings expectations have held up well, with continued AI growth and some broadening across other sectors and by market capitalization (i.e. small caps performing better). Valuations have moderated as risks have been priced in.

International developed markets present a more mixed picture. Europe has shown signs of cyclical softening, particularly in manufacturing and industrial activity, while Japan has benefited from improving corporate governance and currency dynamics. Overall, valuations in international markets remain less demanding than in the U.S., though regional economic momentum continues to diverge.

Emerging markets had been showing improving fundamentals earlier in the year, with broadening growth and better market breadth. More recently, geopolitical tensions and U.S. dollar strength have introduced volatility. However, select emerging markets—particularly in Asia—continue to benefit from structural growth drivers in AI and more attractive valuations.

Overall, while near term uncertainty has increased, global equities continue to be supported by resilient earnings, more balanced valuations, and selective opportunities across regions. Active positioning and regional diversification remain key as markets adjust to evolving macro and geopolitical conditions.

Government bonds have come under pressure as expectations for near-term rate cuts have been pushed out. Yield curves have flattened, and real yields remain positive, reflecting markets that are still cautious about inflation risks. Importantly, longer term inflation expectations have remained relatively anchored, suggesting that markets view recent price pressures as more temporary or supply driven. As yields have moved higher, government bonds are becoming more attractive from an income and valuation perspective, particularly for investors able to extend duration selectively

In investment grade corporate bonds, spreads have seen some widening, especially in the U.S. market. This revaluation has been driven by increased issuance, uncertainty around private credit markets, and tightening of financial conditions. While near-term price volatility has increased, credit fundamentals remain relatively sound, and higher all-in yields are attracting income oriented investors. Selectivity remains key, with opportunities emerging in higher quality issuers where balance sheets and cash flows are resilient while valuation cheapened.

Global developed market bonds reflect a more divergent picture. In Europe, inflation expectations have risen more sharply due to energy insecurity, while real yields have declined, pointing to concerns about growth. By contrast, North American markets continue to signal more moderate inflation risks. These differences highlight the value of geographic diversification within global fixed income portfolios.

High yield bonds have also seen spread widening given heightened scrutiny around private credit and leveraged structures have contributed to a more cautious tone. While defaults remain contained, investors are increasingly focused on credit quality and liquidity.

Overall, the recent adjustment across fixed income markets has improved prospective returns. As yields reset higher and inflation risk gradually priced in, bonds are regaining their role as a source of income and portfolio stability, with active management essential to navigate evolving risks and opportunities.