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Speaker Key:
GS Gregory Sweet
WB Wes Blight
YG Yuko Girard
VO Voiceover
00:00:00
GS Welcome to Let's Talk Investing. I'm your host, Greg Sweet, joined by Wesley Blight and Yuko Girard from our multi-asset management team. And today we're going to slow things down and walk through what really matters for your money amid some very unsettling times. We're talking about the war involving Iran, what this means for energy prices and inflation, how the US and Canadian economies are holding up, what central banks might do next, and how our portfolios are positioned through all of this. We're also going to look at a few possible scenarios so you can understand the range of outcomes, not just the scariest ones. But before we get into all that, we want to recognize this is first and foremost a human tragedy. And our thoughts are with the people and their families directly affected.
00:00:44
WB Exactly, Greg. And when we do turn to markets, it's not because that matters more, but because this is where we can help you stay calm and make informed decisions in the middle of a very emotional set of headlines. Right. So with that in mind, let's talk about the immediate impact of the conflict and what is actually being priced in.
00:00:57
GS Right. So, with that in mind, let's talk about the immediate impact of the conflict and what is actually being priced in.
00:01:04
YG At a high level, the conflict is disrupting shipping and energy flows through the Strait of Hormuz, which carries roughly one-fifth of the world's seaborne oil and a significant share of global liquefied natural gas exports, often known as LNG. That has had knock-on effects on Europe and parts of Asia in particular because they are much more dependent on imported natural gas than North America is. So while everyone feels higher oil prices, Europe and some international markets are more exposed to a squeeze in gas and power prices. And it is not just oil and gas moving through that corridor. The Gulf is also a major shipping lane for food and for the fertilizers that help grow it. Fertilizer can account for up to 25% of agricultural production costs, and this war is putting about one-third of global fertilizer trade at risk of disruption. That combination matters for both fuel prices and food prices around the world. Here at home in Canada, food makes up over 15% of the Consumer Price Index, which is essentially a basket that represents what the average Canadian household spends money on. And energy is about 5% of that basket. Put together, that means moves in food and gas prices, even just a modest jump, can make big waves in inflation headlines, even if the underlying trend in other services and goods is calmer. This is why central banks, including the Federal Reserve and the Bank of Canada, are trying to distinguish between a short-lived spike, which they might look through, and a long-lasting shock that could push inflation meaningfully higher and keep it there. For us, we expect inflation to settle above pre-pandemic levels, but not back at the ultra-low rates we are used to. That is consistent with the idea of a somewhat higher, but stable, inflation environment, hopefully.
00:03:02
GS Our fingers are crossed for that. Let's turn to the U.S. economy now, because it's still the anchor of the global market. What are you seeing being priced into the latest data?
00:03:10
WB Earlier in the year, we saw solid job gains, but more recently, a February payroll report showed a drop of around 90,000 jobs. And that surprised to the downside and moved unemployment up to roughly the mid 4% range. Employment is now only slightly above year-ago levels, but that is very different from the roaring job growth a couple of years ago. This combination of slower but not yet collapsing growth as well as sticky inflation is exactly what's making the Fed's job harder. And because I know you love analogies, here's one for you, Greg. We can think of interest rates as the car's pedals for the economy. When the Fed hits the gas by cutting rates, it makes borrowing cheaper, which can speed the economy up. Businesses invest more, consumers spend more, and growth can pick up. When the Fed hits the brakes by raising rates, it makes borrowing more expensive, which slows the economy down. Now, that can cool inflation, but it can also cool hiring and growth if they push too hard. Right now, the Fed is keeping one foot near the brake and just easing off gently rather than stomping on the pedal. They are trying to keep the economy moving forward, but at a controlled speed so that inflation continues to come down. They're aiming for a smooth ride instead of making any big, jarring moves that could suddenly jerk markets in one direction or the other.
00:04:17
YG Canada's economy is showing more visible soft spots. The latest employment report posted a loss of about 84,000 jobs in February, pushing the unemployment rate toward a high 6% range, and both goods and service sectors felt the pain. wage growth is still running just under 4% year over year, which is decent income growth, but complicates the inflation picture. The Canadian economy will certainly face some of the same pressures from higher oil prices through higher gas and heating costs. But that said, Canada is also a major energy exporter, and so those higher oil prices help support growth in energy-producing provinces like Alberta and Saskatchewan. while weighing more on consumer spending in other parts of the country. And for the Bank of Canada, that adds up to a tricky mix. Growth is struggling, poor inflation is gradually moving closer to 2%, and now energy-driven inflation is flaring up again. So with that said, a hike remains unlikely. But also, there are likely no rate cuts on the table right now.
00:05:44
GS So for our listeners, if you're wondering, will my mortgage rate move lower? The honest answer is central banks are likely to move slowly and carefully rather than dramatically. This is uncomfortable, but it is not a crisis signal on its own. Now let's move to our multi-asset portfolios because this is where rubber really hits the road for our investors. Wes, can you walk us through how we are positioned?
00:06:09
WB A strategic asset allocation remains unchanged, and that is intentional. These portfolios are built around your long-term goals, so we are not changing their core based on every headline. Instead, we make short-term tactical adjustments based on our 12 to 18-month investment view, tuning how much we hold in equities, bonds, and different regions as risks and opportunities change. On equities, we remain selectively constructive, We still believe stocks have a big role to play in growing your wealth, but we are being deliberate about where. And the reason why is because even market darlings like the MAG7 don't leave forever. They have actually been very negative this year. 2026 has also been a reminder that AI winners are not just a handful of mega-cap names. We have seen a sharp sell-off in many software businesses, so software as a service or SaaS companies, as investors have reassessed who might benefit from or be disrupted by the latest wave of AI tools. And that includes more powerful agent-style models from new open-source competitor like open claw. We saw something similar last year when China's deep-seek model shook confidence in the U.S. and some AI names for a period, just as ChatGPT did when it first arrived and repriced expectations for software and internet businesses. The pattern here is that each big AI leap creates volatility and shakeouts, but it also highlights which companies have real competitive moats and which don't. Across our equity funds, we are focused on businesses that are better positioned to harness AI rather than be blindsided by it. Now, these are companies that tend to be vertically integrated, have strong competitive moats, own or control valuable proprietary data, and can embed AI into their products and processes instead of competing directly with it. In other words, we have focused on firms that we believe will be helped by more capable AI agents that automate some of that routine work and improve productivity rather than the ones whose business models might be commoditized by those same tools. Now, that applies not just in technology, but in sectors like healthcare, industrials, financial services, and even parts of the consumer sectors. where smarter automation and data use can drive margin and earnings growth over time.
That said, although we still see opportunity in U.S. equities, especially companies benefiting from AI automation and strong balance sheets, we are balancing that with exposure to other markets where valuations are more reasonable and earnings growth is also improving. In the near term, Europe and emerging market stocks have been hit harder by the recent conflict, and that's partly because of their proximity to the region and their greater dependence on imported energy. Well, the sharp risk-off move is tied to geopolitics and higher energy prices as well. And that's created a stretch of underperformance there versus North America. The flip side is that our earlier overweight to North American equities helped our portfolios hold up better through that initial risk-off phase. And now with some of that underperformance abroad, we are leaning into what we see as more attractive opportunities in select European and emerging market names while keeping an eye on the geopolitical risk that we're seeing. And while the recent Iran-related sell-off has jolted markets, we still see the bigger economic picture, as well as the long-term cash flows being broadly supportive.
00:09:50
GS Okay, Yuko, it sounds like the headlines are pushing prices around more than the underlying fundamentals have changed. Is that fair?
00:09:57
YG Exactly. And so on the tactical side, again, that's based on our 12 to 18 months outlook, we have moved our equity exposure a bit higher relative to bonds and cash with a focus on international and emerging market equities where we see more attractive value. At the same time, we have extended duration in some of our portfolios so a client can benefit more if today's higher yields eventually move lower over time. Right. Meanwhile, our Canadian equity exposure continues to give investors meaningful access to energies and materials. Periods of higher oil prices have often lined up with relative strength in energy stocks, and that is what we are seeing right now. At the same time, we are seeing materials supported by ongoing infrastructure and AI-related spending, another sector we have exposure to, performing strongly. More broadly in 2026, we have seen investors rotate away from many of the high-flying tech names and into a mix of cyclical and defensive sectors like energy, materials, industrials, staples, and utilities. And those areas have been outperforming tech year to date. The knock-on effect shows up in style factors too, with value clearly outpacing both growth and quality over the same period, even though earnings momentum for many tech companies has not really changed. In that backdrop, gold and other materials have also benefited as classic safe haven or inflation hedge plays, and our exposure there has helped cushion some of the equity volatility. But as always, we're very careful not to bet the farm on any one move, and we continue to take a diversified, balanced approach across sectors and regions.
00:11:45
GS Okay, so it's safe to say that you're on it. Yes, we are.
YG Yes, we are.
00:11:51
GS All right, let's move to fixed income. Yuko, what role are bonds playing for investors right now?
00:11:53
YG On the fixed-income side, we still see high-quality bonds as an important shock absorber in portfolios, and investors are still being paid a reasonable spread for taking solid, not speculative, risk. With central banks likely to move toward gradual rate cuts over time, but not rushing, We also see value in select duration exposure. We're not going all in on long bonds, but we are holding enough to benefit if yields drift lower from today's higher levels.
00:12:26
GS Finally, Wes, rather than a very precise forecast, you and the team often talk about scenarios. Can you walk our listeners through the main ones that you're planning around today?
00:12:39
WB When we think about the road ahead, we're not working off one single forecast. We are really planning around two broad paths for the current conflict and making sure our portfolios can handle either one. So scenario one, this is a short-lived disruption, hopefully. In this case, shipping through the Strait of Hormuz gradually normalizes, more supply comes back online, and oil prices retrace lower rather than staying at today's elevated levels.
The impact on inflation looks more like a temporary risk premium than a lasting shock. So inflation expectations settle, as Yuko talked about, bond yields ease back a bit, and equity markets can regain their footing. In that environment, that modest global growth will continue. Central banks are able to resume their gradual rate cuts and earnings, not just valuation changes, do most of the work for equity returns. The second scenario is a more prolonged disruption.
And here, the conflict drags on. Oil flows remain constrained for a longer period of time, keeping prices high and volatile. And that higher oil price acts like a tax on consumers. It leaves less money for other spending activity, and it raises the risk of slower growth and stickier inflation.
And that kind of environment, stagflation worries can rise because growth becomes under pressure while inflation is not really falling as quickly as central banks would like. And that in turn could lead central banks to delay or scale back rate cuts. In some regions, it may even lead to a talk of tightening again if that price pressure accelerates. And in that type of situation, equities would likely face more persistent pressure and investors would flip more often between risk on and risk off as each of those new data points arrive, a little bit more volatility inducing. And then the important thing from a portfolio perspective and a multi-asset portfolio perspective in particular is that if growth slows enough, those high prices eventually act as a break on the economy and on inflation. And that's specifically the high oil prices. As that happens, bond yields can start to move lower again, and high-quality bonds can appreciate in value even if stocks are still under pressure. And that's where that more traditional negative correlation between stocks and bonds can assert itself, and your fixed income holdings help to stabilize the overall portfolio when equities are having a tougher time. The key point for our investors here is that we are on this and your portfolios are not built for any just one scenario.
00:15:20
GS Thanks, Wes. And for our listeners, periods like this are a test of temperament as much as they are a test of our portfolios. It is completely natural to feel anxious, but history shows that reacting emotionally is often one of the costliest decisions an investor can make. If this environment has you laying awake at night, this is a signal to talk to your advisor, not a signal to overhaul your portfolio. Sometimes the right adjustment is simply to reframe what normal volatility looks like in a world where geopolitics are louder than they used to be. Our multi-asset management team will keep monitoring the data and making thoughtful incremental adjustments where it makes sense. So you don't need to react to every headline. They're on it. Wes, Yuko, thanks so much for being with me today.
00:16:09
YG Thanks for having us.
00:16:09
WB Thank you
00:16:10
GS And to the listeners, thanks for tuning in to Let's Talk Investing. Please be well and take care.
00:16:14
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