After a rather favorable start to the year, investors were quickly thrust into a pronounced regime of uncertainty, forced to contend simultaneously with significant disruptions on both the technological and geopolitical fronts. This environment has led to a marked increase in volatility across all financial markets—equities, bonds, currencies, and commodities—even though, at this stage, the damage observed remains relatively limited in light of the solid gains recorded in 2025.
While advances in artificial intelligence have raised legitimate questions for a number of companies that have historically benefited from substantial barriers to entry, the critical issue at present remains the near‑total halt of maritime traffic at the exit of the Persian Gulf—by far the most decisive bottleneck for global energy flows.
At first glance, the latest economic data remained broadly aligned with our outlook. Corporate earnings growth has largely surprised to the upside, while the labor market has remained resilient, with a relatively stable unemployment rate, inflation showing no notable excesses, and central banks still lacking any urgency to alter their monetary policy. However, the generalized shock currently observed in commodity prices is materially altering the outlook and, more importantly, the balance of risks.
More specifically, while our base‑case scenario continues to anticipate a continuation of economic growth—provided that a gradual recovery in maritime traffic in the Persian Gulf begins within a relatively short time frame—the risk of a stagflationary shock, with more severe consequences for global growth, nonetheless remains non‑negligible.
Against this backdrop, we reduced the overall risk level of our tactical asset allocation strategy during the third week of March, bringing the equity allocation back to a neutral stance, offset by an increase in exposure to bonds.
From a geographic perspective, we also reduced our allocation to Canadian equities over the course of the quarter, seeking to crystallize profits on a position that had become increasingly sensitive to a pullback in gold prices—a scenario that indeed materialized in March.
Moreover, we maintain an overweight position in emerging markets at the expense of developed markets outside North America. In both cases, reliance on energy imports represents a significant risk to growth. However, more attractive valuations and stronger earnings growth prospects in emerging markets represent a meaningful comparative advantage relative to the EAFE region.
In sum, beyond the very real short‑term risks, it is worth recalling that history offers an important lesson regarding the effects of geopolitical shocks on equity markets. In the vast majority of cases, periods of financial stress have been followed by a recovery over a one‑year horizon or longer. As such, while the current situation must be taken with the utmost seriousness, it remains equally essential to avoid decisions driven by emotion and to remain focused to one’s investment horizon—an horizon that, for most investors, is measured not in months, but in years.