Highlights
The kidnapping of Venezuela’s president, an adverse Supreme Court ruling on tariffs, and a U.S. military operation against Iran – by any measure, the first two months of 2026 have been rich in geopolitical developments. Yet despite this turbulent backdrop, global equities have posted respectable gains so far this year, masking significant vulnerabilities beneath the surface.
These weaknesses are particularly evident from a geographic perspective. Canadian equities and overseas markets have significantly outperformed U.S. stocks, which have effectively stagnated over recent months.
From a macroeconomic standpoint, fundamentals remain supportive. That said, the cooling in labour demand, the trajectory of services inflation, and the renewed rise in energy prices will be key factors to monitor.
On the tariff front, the Supreme Court’s decision provides two important clarifications. First, it materially constrains the president’s ability to unilaterally threaten the imposition of tariffs under virtually any pretext. It also reinforces the view that tariff levels have likely peaked, even if they remain elevated.
Meanwhile, artificial intelligence – previously a tailwind for markets – has become a source of uncertainty for equities. Massive investment in the sector has weighed on free cash flow expectations for technology leaders, while advances in software development have called their valuation premiums into question. Rather than fueling broad-based optimism, AI is now accelerating dispersion across sectors and business models, thereby reinforcing the case for diversification.
Bottom Line
Overall, the base‑case outlook remains constructive, supported by earnings growth. Recent positioning reflects this view: increasing exposure to emerging markets amid improving earnings momentum, while taking profits in Canadian equities after significant outperformance and a material narrowing in valuation discounts.