Q3 2026 Strategy & Market Reviews
Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Third Quarter of 2026. You can download the full reports via the links shown below.
Key Observations
During the third quarter, the S&P 500 posted a total return of +2.30% in U.S. dollar terms. The S&P/TSX Composite Index delivered a positive total return of +1.62%.
Following its September Federal Open Market Committee (FOMC) meeting, the Federal Reserve raised its target range for the federal funds rate by 25 basis points to 3.75%–4.00%. This was the first interest rate hike in more than three years. The Fed noted that economic activity continues to expand at a solid pace, while inflation remains above its 2% target.
The U.S. economy continues to demonstrate considerable strength. The Atlanta Fed’s GDPNow model estimated third-quarter GDP growth at 5.0%, the strongest pace since late 2021. Unemployment remains low at 4.1%, while jobless claims are near levels typically associated with full employment.
Corporate earnings have also been exceptionally strong. S&P 500 earnings per share rose 50.7% in the second quarter, or roughly 25% excluding one-time gains. Consensus expectations remain robust, with growth of 23.6% forecast for the third quarter and 27.9% for the fourth.
Earnings expectations have outpaced share price gains, cutting the S&P 500’s forward P/E from 22.2x to 19.2x, its 10-year average, meaning stocks are now cheaper relative to estimates. Historically, such estimates have proven reasonably accurate outside of recessionary periods. A recession over the next 12 months is not our base case.
The global economy is showing similar resilience. Manufacturing activity has strengthened across developed markets, supported by investment in artificial intelligence, infrastructure, energy, defence and the reshoring of supply chains. Global corporate earnings increased by 39% year-over-year in the second quarter.
Overall, we remain constructive on equities, while recognizing that rising interest rates may create periods of volatility and put pressure on valuations. Strong economic growth and corporate earnings provide fundamental support for markets, although returns may become more selective as monetary policy evolves.
North American Equity Update
Peter Jackson, HBSc, MBA, CFA
Chief Investment Officer
Portfolio Manager, North American Equities
Our overall equity exposure decreased from 97% to 95% since June 30, 2026, while cash increased from 3% to 5%. Within equities, U.S. exposure increased from 54% to 56%, while Canadian exposure decreased from 43% to 39%.
Canada’s economy has remained stronger than expected, with GDP growth accelerating to 3.8% annualized in the second quarter. Higher oil and commodity prices have boosted export revenues and investment, while a weaker Canadian dollar has enhanced the competitiveness of Canadian exports. Approximately 80% of our Canadian equity exposure is invested in energy, materials and financial services, positioning the portfolio to benefit from these conditions while limiting exposure to tariff-sensitive areas.
The Fed’s September interest rate hike warrants caution, but does not necessarily signal a prolonged downturn. On average, the S&P 500 has fallen -3.2% in the month after the first hike of a tightening cycle, but one-year returns were positive 83% of the time.
During the quarter, we raised some cash through tax-loss selling, with a focus on consumer and industrial stocks, and redeployed capital into technology, particularly semiconductors.
In our North American strategy, we established the following position:
Micron Technology is benefitting from an AI-driven memory cycle while trading at approximately seven times expected earnings over the next 12 months. Micron has signed multi-year agreements with 16 large customers, which will secure a portion of revenue at margins well above historical peak cycles. We believe this will provide better long-term earnings visibility and drive a rerating for the stock.
A detailed review of each holding can be found in the full report per the link above.
Global and International Equity Update
Phil D’Iorio, MBA, CFA Portfolio Manager, Global Equities
John Hwang, CFA Lead Manager, International Equities
Most developed market indices generated modest positive returns during the third quarter of 2026. The MSCI World Index returned +2.0% in U.S. dollars, while Japan gained +3.8%, Canada +1.6% and Europe declined 0.6% in local currency terms. Ongoing geopolitical tensions and a series of interest rate hikes led to significant volatility, although the global economy appears to be in good shape based on leading economic indicators.
One of the key developments during the quarter was a shift by developed market central banks toward a more synchronized interest rate tightening cycle. Bond yields have increased in most parts of the world, and the U.S. 10-year Treasury yield rose above 5% for the first time in two decades.
Economic momentum remains firm across most developed regions. After spending much of the previous three years in contraction, the J.P. Morgan Global Manufacturing PMI moved into expansionary territory in 2025 and continued climbing in 2026. September’s reading of 53.0 was the highest since February 2022, reflecting stronger output, new orders and international trade.
The robust corporate earnings backdrop reflects strong demand for artificial intelligence infrastructure, but also a pickup in cyclical growth. Earnings growth has been widespread across geographies and industry sectors, providing an important foundation for global equity markets.
Geopolitical tensions, inflation and potential volatility surrounding the U.S. midterm elections remain important risks. While crude oil exports from the Persian Gulf have recovered to approximately 80% of prewar levels, shortages of refined products continue to present challenges for global energy markets.
Throughout the year, we have maintained a cautiously optimistic view. We are particularly encouraged by the broadening of economic momentum beyond the United States and the strong corporate earnings picture across geographies and sectors. We continue to have a constructive view on global equities.
In our Global strategy, we established the following new position:
Tokyo Electron is a global leader in semiconductor production equipment. Semiconductor growth is expected to remain strong with AI a key driver as the market expands to $1 trillion by 2030. We see the potential for long-term low double-digit earnings growth driven by a strong backdrop for semiconductors.
In our International strategy, we established the following new positions:
Fisher & Paykel Healthcare is a New Zealand-based manufacturer of respiratory care and sleep apnea products. Expanding applications for its products and growing demand for consumables are expected to drive results. Increased penetration in areas such as anaesthesia should support low double-digit revenue growth over the mid-term.
Sika is a Swiss-based global leader in construction chemicals. Its combination of organic growth, acquisitions and cost savings provides opportunities for earnings growth. We believe the company should be able to deliver low-teens earnings growth over the medium-term and its valuation is attractive.
Nestlé is one of the world’s largest food companies. New management is focused on improving growth, exiting non-core businesses and increasing free cash flow, while easing commodity costs could support margins. The new CEO has committed to a focus on better shareholder returns in the future.
A detailed review of each company can be found in the full report per the link above.
Fixed Income Update
Owen Morgan, MBA, CFA
Portfolio Manager, Fixed Income
The third quarter of 2026 was a challenging period for fixed income investors. Interest rates and the yield curve shifted higher, with the two-year Government of Canada bond yield rising from 2.50% to 3.25% and the 10-year yield increasing from 3.55% to 3.95%.
Several factors contributed to rising yields, including higher energy prices resulting from conflict in the Strait of Hormuz, concerns about government debt, ongoing trade tensions between Canada and the United States, and increased demand for capital associated with artificial intelligence investment.
Canadian bonds have nevertheless been relatively resilient compared with U.S. Treasuries. Canada’s cooler growth backdrop, somewhat milder inflation and less challenging government finances have helped moderate the increase in Canadian yields.
As bond yields increase, bond prices decline, making the quarter difficult for fixed income investors. In more positive news, corporate bond spreads remained anchored and tightened modestly, suggesting investors are not signalling significant concerns about credit market conditions.
Our strategy of holding primarily short-duration bonds, which are less sensitive to interest rate changes, and focusing on corporate issues served us well. These holdings provided some protection against rising yields, while their higher coupons helped offset declines in bond prices.
Looking ahead, we believe ongoing trade uncertainty with the United States will constrain Canadian economic growth and keep the Bank of Canada on the sidelines. However, sustained higher energy prices could contribute to broader inflation pressures and potentially force the Bank to raise rates sooner rather than later. This is not our base case, although we believe the likelihood has increased.
We remain neutral for the remainder of 2026 due to market uncertainty, but cautiously optimistic heading into early 2027. Our focus remains on generating reliable income while protecting portfolios from unnecessary risk.
A detailed review of each company can be found in the full report per the link above.
