July 15, 2026
Investment Outlook
and Portfolio Strategy
 Q3 2026

Public Markets Outlook

Fixed Income Review

Fixed income markets generated positive results in the second quarter.

Investors took some solace from the surprisingly swift pullback in oil prices following reports of a tentative peace accord between the U.S. and Iran that reined in some of the most aggressive views on potential rate hikes from central banks. The FTSE Canada Bond Universe rose 2.0%.

The Federal Reserve left rates unchanged in June. While the economy continues to operate at a solid pace, the message focused squarely on the inflation side of the dual mandate, given that inflation has been missing its target for more than five years. At his inaugural meeting, Chair Kevin Warsh’s message was decidedly hawkish, driving home the message that officials are “unambiguously and unanimously” focused on fighting inflation. Interest rate forecasts shifted higher in response, with officials equally divided on whether to hike rates this year or leave them unchanged.

The Bank of Canada also held rates steady but maintained the flexibility to adjust in either direction. Should trade disruptions intensify, excess supply could widen and open the door to rate cuts. Conversely, if elevated energy prices prove more durable and feed into broader inflation expectations, rate hikes could be in the offing.

The European Central Bank raised interest rates in June. While officials highlighted that risks to growth are skewed to the downside, greater emphasis was placed on the upside risks to inflation, with officials standing ready to act further if required. However, following the sharp decline in oil prices, President Lagarde noted that risks to euro-area inflation and growth have come into better balance.

The Bank of England left interest rates unchanged in June. Still, the message was one of caution, with the committee retaining “full optionality” despite the decline in oil prices. The committee kept enough of a hawkish bias to respond should second-round inflation effects emerge.

Investment Strategy

We expect the inflationary impulse to linger on and keep central banks firmly on the sidelines, with little chance of inflation reverting back towards 2% over our 12–18-month time horizon. Barring a recessionary outcome or a disinflationary boom scenario that sees inflation push substantially lower, the balance of risks for bond yields is to the upside (and prices to the downside). As such, from a risk-reward perspective, we maintain an underweight allocation to bonds.

Canadian Fixed Income Market Returns

  1. 3 Months
  2. 1 Year 
  • 8.0%
  • 6.0%
  • 4.0%
  • 2.0%
  • 0.0%
  1. Canada Broad
    • Canada Broad
      3 months: 2.0%
    • Canada Broad
      1 year: 3.5%
  2. Canada Broad Short Term
    • Canada Broad Short Term
      3 months: 1.2%
    • Canada Broad Short Term
      1 year: 3.1%
  3. Canada Broad Mid Term
    • Canada Broad Mid Term
      3 months: 1.9%
    • Canada Broad Mid Term
      1 year: 4.1%
  4. Canada Corporate
    • Canada Corporate
      3 months: 2.1%
    • Canada Corporate
      1 year: 4.4%
  5. High Yield
    • High Yield
      3 months: 2.0%
    • High Yield
      1 year: 3.9%
  6. Canada Preferred Shares
    • Canada Preferred Shares
      3 months: 4.0%
    • Canada Preferred Shares
      1 year: 12.9%

Source: Fiera Capital, as of December 31, 2025.

Past performance is not a guarantee of future results. Inherent in any investment is the potential for loss.

Equity Review

Global equity markets generated some solid results in the second quarter, with unrelenting enthusiasm around the artificial intelligence boom and optimism for a ceasefire between the United States and Iran supporting risk appetite. However, stock markets lost some of their luster in June.

The high-flying technology and megacap space proved to be a source of volatility late in the quarter as traders reassessed the sustainability of the AI trade and related stock valuations. Just as concerns over the oil shock were fading, cost pressures stemming from the AI boom leapt to the forefront, underscoring the sensitivity of equity markets under the influence of lofty valuations, elevated interest rates and market concentration.

In Canadian dollar terms, the MSCI All Country World (17.3%) ended the second quarter near record highs. The S&P 500 (17.1%) posted its best quarterly performance since the post-pandemic rebound in 2020, led by outperformance in the heavyweight technology space. The S&P/TSX (7.0%) also advanced but underperformed as weak (negative) performance in the energy and materials sectors outweighed stellar performance in the financials space. The MSCI EAFE also had a decent quarter (12.7%). Finally, the MSCI gauge of emerging market stocks (26.1%) significantly outperformed its developed market peers, powered higher by an impressive rally in Asian chipmaker stocks that drove robust gains in Korea and Taiwan that represent more than 50% of the index.

Investment Strategy

Our high probability scenario calls for an environment of “Sustained Inflation” over the next 12-18 months. While pricing pressures persist and inflation holds firmly above central bank targets, well-anchored inflation expectations allow for a pragmatic (less hawkish) policy response which, in turn, helps to alleviate the potential for severe downside pressure on the economy. Still, with interest rates remaining higher for longer, global growth prospects are likely to shift modestly lower – a dual headwind for both valuations (the “P” in P/E) and earnings expectations (the “E” in P/E) that poses some challenges for stock markets that are trading near record highs.

While much of the good news has been priced in at current levels, equity markets could be vulnerable to a negative surprise. Namely, a prolonged and unsettled conflict in the Middle East, an intensification in the trade war and/or a bust in the AI trade still pose downside risks to the outlook. Barring a profound, investment-led productivity boom that extends the bull market in stocks – which is less likely in our view – we expect equities to remain on the defensive. We maintain an underweight stance on equities over our tactical 12–18-month horizon.

Equity Market Returns

  1. 3 Months
  2. 1 Year 
  • 48.0%
  • 38.5%
  • 29.0%
  • 19.5%
  • 10.0%
  1. S&P/TSX Composite
    • S&P/TSX Composite
      3 months: 7.0%
    • S&P/TSX Composite
      1 year: 32.9%
  2. S&P 500
    • S&P 500
      3 months: 17.1%
    • S&P 500
      1 year: 27.2%
  3. MSCI EAFE
    • MSCI EAFE
      3 months: 12.7%
    • MSCI EAFE
      1 year: 25.0%
  4. MSCI Emerging Markets
    • MSCI Emerging Markets
      3 months: 26.1%
    • MSCI Emerging Markets
      1 year: 49.2%

Source: Fiera Capital, as of December 31, 2025.
Returns shown are for illustrative purposes only and represent past performance of the indicated indices over the stated periods. Index performance does not reflect the deduction of fees or expenses and is not intended to represent the performance of any specific investment or strategy. Past performance is not a guarantee of future results. Inherent in any investment is the potential for loss.