First Quarter 2026 North American Equity Strategy

Summary:

In Q1 2026, markets faced headwinds from geopolitical tensions while economic fundamentals remained resilient. The S&P 500 declined 4.33% in dollar terms, though Canadian investors saw improved returns of -2.84% CAD due to currency depreciation. Meanwhile, the S&P/TSX Composite surged 3.94%, driven by energy sector strength.

The Federal Reserve maintained interest rates at 3.50%-3.75%, signaling no rush to cut rates despite persistent inflation concerns. Fed Chair Jerome Powell emphasized uncertainty regarding Middle East developments, with fewer participants now expecting rate cuts in 2026. Economic projections show modest GDP growth of 2.4% for 2026 and elevated PCE inflation at 2.7%.

Historical analysis suggests current conditions differ fundamentally from 1970s stagflation scenarios. Energy intensity has declined two-thirds since the 1970s, and the U.S. is now a net energy exporter, making the economy far less vulnerable to oil shocks. The Misery Index stands at just 6.8%—near “economic nirvana”—compared to 20%+ during previous crises.

Coincident indicators paint an encouraging picture: GDPNow estimates Q1 GDP growth at 2.0%, retail sales rose 6.9% year-over-year, and credit spreads remain below long-term averages. Earnings growth remains robust, with consensus estimates projecting 19.0% growth in 2026 and 16.8% in 2027.

Portfolio adjustments included reducing gold exposure and increasing energy positions, as gold valuations appear near cyclical peaks while energy offers attractive valuations. New positions in Union Pacific and TJX Companies reflect conviction in durable assets and differentiated business models. The outlook remains constructive, with expectations for a relatively swift conflict resolution supporting market recovery over coming months.

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