Temporary Disruption or Structural Change?

It can be difficult to sift through the news and the headlines about what's truly happening. Take Canada-US trade. If you listen to what's coming out of the US, it sounds like we already have a deal in place. If you listen to the Canadian side, that's not the case.

In our September webinar, I said the biggest takeaway was a simple question: is this a temporary disruption, or is it a structural change?

I think that question applies well beyond trade. We have learned that these markets are very event-driven. A lot of the numbers we're seeing are really driven by events happening in the world. Oil prices are high, and inflation has been sticky partly because of high energy costs.

So rather than reacting to every headline, it's worth looking at what the underlying numbers are actually telling us.

In the webinar, I walked through a short list of indicators: US GDP, unemployment, inflation, the Fed funds rate, the 10-year Treasury yield, oil, and the S&P 500. What stood out to me is that growth has been resilient, though somewhat uneven.

US GDP has been resilient. It's not by any means booming, but outside of one blip in 2025, it has continued to grow. Some people might be surprised by that, given the US stance on tariffs and trade, geopolitical unrest, and the trade dispute with Canada.

Consumers have held up too. When we compared the third quarter of 2025 with the third quarter of 2026, the share of US consumers planning to start their holiday shopping early was pretty much the same. That's despite everything that's gone on in the economy and higher prices for goods and services. Here in Canada, consumer spending has increased almost quarter over quarter for close to two and a half years.

Corporate earnings matter as well. Strong earnings can offset higher rates, and in a recent quarter, 86% of US companies beat expectations. The market has also broadened. In previous years, returns were really focused on the Magnificent Seven, mostly AI-related companies. Now it's much more broad, which means it's more sustainable and consistent.

Oil, on the other hand, is a clear example of an event-driven move. We have seen firsthand that when we get a potential resolution or ceasefire, oil comes down quickly. And so long as oil stays elevated, inflation likely will too, because everything trickles down to the end user, which is the consumer.

The flip side is that if we get a resolution, things could improve quickly. Oil prices could fall, inflation numbers could fall, and that would give the US Fed a lot more wiggle room.

Trade is harder to predict. Tariffs have increased on both sides, and businesses are facing greater uncertainty around costs and supply chains, and how they're going to remain profitable on a go-forward basis.

Given some of the comments out of Canada, I think it may be the latter: a structural change in how we trade with the US in general. There has been a big focus on becoming a little more independent from the US. We'll always be tied to them, as we're one of their biggest trading partners. But Canada is focusing on getting out of a very specific interdependency.

So far, we haven't seen it impact our market too much here in Canada. The overall tariff rate is still low, though higher than it was. I think small businesses are where we'll really see the impact. Supply chains have begun to reduce their reliance on the US to a certain extent, but not on a large scale at this stage.

I expect negotiations to go back and forth rather than escalate significantly. If it's short-lived and transitory, that's okay. We're going to have to see what happens over the next while.

That's why we're not going to try to predict what's going to happen tomorrow. We'd rather look at the full picture than get caught up in the headlines. For us, that comes down to three things.

First, diversify the sources of return. I've been talking about this nonstop throughout the year, and I know it can get a little old, but we need to diversify among asset classes, sectors and regions. We're not putting all of our eggs in the US basket, or in Canada. We have five to six asset classes instead of two, with international, Canadian and US holdings across large and mid-cap companies. I think this is the best way to manage volatility.

Second, don't overextend duration or equity risk. It goes back to making sure the portfolio aligns with what you're trying to accomplish.

Third, keep quality high. Focus on good quality investments, things that are more stable. There's no sense buying riskier small and mid-cap names when there's a lot of good value in large-cap names.

The 10-year Treasury yield is a good example of why the full picture matters. When it climbed to around 5%, webinar attendees asked me what that meant for them. On the surface, 5% looks attractive. But that 5% is fully taxable. You only truly get it if you buy a 10-year Treasury today and hold it to maturity, because the price of the bond fluctuates with interest rates in the meantime.

Here in Canada, there's another layer: currency risk. If I were to buy a 10-year Treasury myself, I would have to convert Canadian dollars to US dollars, and if the Canadian dollar goes up or down, it affects my overall return. That's why accessing fixed income through big money managers, who can benefit from large volumes and get better spreads, makes more sense for most of us.

How all of this plays out will impact investors, including myself. In an uncertain market, positioning matters.

If you have questions or comments about your situation, please don't hesitate to reach out.

You can watch the replay of the webinar below.

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