As many investors are aware, a relatively small group of companies have been significant drivers of market returns. The Magnificent 7 (Apple Inc., Microsoft Corporation, NVIDIA Corporation, Alphabet Inc., Amazon.com, Inc., Meta Platforms, Inc., and Tesla, Inc.), along with other technology companies in the semiconductor and artificial intelligence (AI) space, have fueled index performance, particularly in the U.S. This has resulted in elevated market concentration, with the Mag-7 alone accounting for more than 30% of the S&P 500 Index’s market capitalization.

While mega-cap technology stocks have been major contributors to equity market performance, we’ve been observing earnings growth broadening beyond these multi-trillion-dollar enterprises. At the same time, earnings revisions have been trending higher across sectors, signalling increasing confidence in corporate profit expectations and a wider base of companies contributing to growth.

Importantly, much of the market’s broadening performance has been driven by earnings growth rather than expanding valuations. This suggests that returns are supported more by underlying fundamentals and corporate profitability than by investor enthusiasm alone.

Within the S&P 500 Index, revenue and earnings growth have broadened across most sectors. Notably, year-over-year (YoY) earnings growth has expanded meaningfully in both U.S. and Canadian equity markets during the Q2 2026 reporting period. Across the S&P 500 Index, the Energy sector is leading YoY earnings growth, followed by the Communication Services and Consumer Discretionary sectors. In Canada, the S&P/TSX Composite Index is being led by Energy, with the Materials and Health Care sectors also showing strong earnings growth. While a few sectors continue to lag, the overall picture suggests that market leadership is expanding and creating a healthier, more diversified foundation for future returns (Exhibit 1).

While broadening equity market leadership may be dominating the conversation around expanding investment opportunities, we believe fixed income remains an important portfolio diversifier. With yields having moved higher and likely to remain elevated, the WAAC believes fixed income continues to offer an attractive combination of income generation and portfolio stability.

From a valuation perspective, intermediate-term Canada and U.S. government bonds appear increasingly attractive and are yielding above their 20-year averages (Exhibit 2). Yields remain above the levels relative to our estimates of fair value, and this is particularly evident in the U.S., where elevated nominal and real yields have improved the potential return from adding duration. 

Although government deficits and geopolitics remain key considerations for bond yields, capital spending related to AI has also contributed to the recent rise in real yields in part by raising prospects for longer-term economic growth. More importantly, however, inflation expectations have remained stable as investors correctly anticipated that central banks would tighten monetary policy to keep inflation anchored close to their targets. This has helped stabilize yields at historically elevated levels.

On the corporate credit side, spreads remain tight, but sector dispersion has increased compared to last year, creating more security selection opportunities. Overall, bond yields remain attractive, and investors can earn meaningful income from high-quality corporate securities while, in our view, taking on a reasonable level of risk.

After years of suppressed yields, fixed income is once again offering meaningful income and diversification potential. Higher yields and attractive real rates are helping create a more balanced risk-return profile for multi-asset portfolios.

In private markets, investor interest remains strong, even as parts of the private credit and private equity markets attract greater scrutiny amid concerns about valuations and leverage levels.

Private credit continues to benefit from structural changes in lending markets. Banks are increasingly providing financing to private credit funds rather than lending directly to companies, contributing to a larger and more diversified private lending ecosystem.

While concerns around leverage and valuation pressures in parts of the private equity landscape are understandable, private market opportunities remain distinct from public market exposures and continue to attract investor capital.

Canadian office and retail real estate are also showing signs of improving fundamentals, particularly among high-quality properties where occupancy levels and rental growth have strengthened. These areas may provide access to opportunities that are not readily available in public markets.

Commodities have seen tailwinds from oil price increases but we have been witnessing a broader trend of commodity pick-up for a number of years. Commodities tend to move in super cycles of under investment followed by over investment. We believe investors can benefit from the early stages of a commodity super cycle while also building portfolio resilience and diversification through their inclusion.

More broadly, maintaining exposure to alternative assets can be especially valuable if traditional stock and bond diversification becomes less effective during periods of market stress.