NO DEAL
There’s been no shortage of commentary on the failed Canada–U.S. trade deal, but we chose to let the dust settle before weighing in. Now that we’ve sifted through the publicly available details, it’s time to address the points that actually matter: what drove the collapse, what the fallout means for the Canadian economy, and where Canadian negotiators can realistically go from here. And, most importantly, what all of this means for our client portfolios.
Canada and the U.S. have, since the Reagan era, developed one of the world’s largest and most integrated trading relationships. The countries have more than a century of economic cooperation and decades of free trade agreements that ultimately led to the Canada-United States-Mexico Agreement (CUSMA), that was initially negotiated by the current US president. This relationship has created deeply interconnected supply chains across manufacturing, agriculture, energy, natural resources, and services.
Multiple commentaries and opinions talked about the deteriorating relationship over the past two years. The latest salvos went viral, as the collapse of the most recent trade negotiations effectively ruptured the relationship. Whether in its current form, it becomes permanent or temporary, remains to be seen. But what we know with certainty is a fundamental change in the way North America will conduct business.
Beyond the headline theatrics, the real fault lines have been the familiar ones: clashes over market access, competing industrial‑policy priorities, and the perennial tug‑of‑war over economic sovereignty.
The latest round of trade negotiations, which many observers believed was close to producing a breakthrough, collapsed dramatically in August 2026. The failure triggered an escalation in what is clearly a trade war. The initial volley was the imposition by the United States of 50% tariffs on approximately U.S. $20 billion worth of Canadian exports which Canada responded with dollar for dollar retaliatory measures.
This breakdown is significant not only because of the immediate economic consequences, but because it raises broader questions about the future of North American economic integration. Understanding why the talks failed, what each side was trying to achieve, and how negotiations might eventually resume is crucial for assessing the future of U.S.-Canada relations.
Background to the Negotiations
The most recent negotiations were intended to resolve a growing list of trade disputes that had accumulated since the reintroduction of aggressive U.S. tariff policies. Over the previous year, both countries imposed retaliatory measures targeting various sectors, including steel, aluminum, automobiles, dairy products, lumber, and consumer goods.
Throughout August 2026, officials from both governments engaged in intensive discussions. U.S. President Donald Trump even delayed a planned tariff deadline after initially suggesting that a deal was near completion. Canadian Trade Minister Dominic LeBlanc similarly indicated that negotiators were close to an agreement. Yet despite this apparent progress, negotiations collapsed at the last minute as both sides accused the other of changing previously agreed terms.
The resulting breakdown has ushered in the most serious commercial dispute between the two countries in decades. From Washington’s perspective, several longstanding issues motivated its negotiating position. The principal issue was market access for U.S. Industries.
The United States has long argued that Canadian policies restrict access for American producers in sectors such as dairy, lumber, and alcoholic beverages. U.S. officials sought broader entry into Canada’s dairy market and increased opportunities for American businesses that they believe face artificial barriers in Canada.
Particularly contentious has been Canada’s supply management system for dairy, which protects domestic farmers through production quotas and import restrictions. U.S. policymakers have repeatedly argued that the system discriminates against American producers.
The U.S. also wanted Canada to remove retaliatory tariffs. U.S. trade representatives entered the negotiations seeking the removal of Canadian counter-measures imposed during earlier rounds of the trade dispute. U.S. officials argued that Canada should eliminate retaliatory duties in exchange for tariff relief on products such as steel, aluminum, and automobiles. American trade negotiators reportedly viewed this as a reasonable compromise that would allow trade flows to normalize. At least that was the view before the U.S. Department of Commerce – headed by Howard Lutnick – entered the fray at the last moment.
These trade negotiations centered on a desire of the American side to bring manufacturing activity back to U.S. soil. Tariffs on automobiles and industrial products were partly designed to encourage firms to relocate production south of the border. American negotiators viewed tariff leverage as a tool for achieving broader industrial policy objectives.
These latest failed negotiations were in large part, seen as preparation for the upcoming CUSMA renegotiation. The U.S. viewed these negotiations as merely a stepping stone toward broader discussions regarding updates to the CUSMA. Officials indicated that a successful bilateral agreement could pave the way for formal negotiations on future revisions to the North American trade framework.
Canada expressed willingness to negotiate, but Prime Minister Mark Carney ultimately concluded that the proposed agreement crossed several Canadian red lines.
One of Canada’s most significant concerns involved automobiles. The Canadian auto sector, concentrated largely in Ontario, supports hundreds of thousands of direct and indirect jobs. Canada objected to U.S. proposals concerning the treatment of Canadian content in vehicles and believed the American approach would provide insufficient protection for Canadian manufacturing.
Initially, the reduction of auto tariffs to 15% appeared to be acceptable (a position that we disagreed with) but became untenable when Mr. Lutnick was unwilling to reduce tariffs on Canadian built trucks, which is the main production in Canada. Canadian officials feared that accepting the proposed terms could accelerate the shift of investment and production into the United States and ultimately destroy the Canadian auto industry.
Perhaps the most politically sensitive issue involved American proposals that Canada believed would restrict its ability to negotiate future trade agreements with other countries. Prime Minister Carney described these provisions as a challenge to Canadian sovereignty and characterized them as an unacceptable “power play.” For Canadian negotiators, maintaining the freedom to diversify trade relationships beyond the United States was non-negotiable.
Canada also rejected proposals that could potentially weaken longstanding protections for Canadian culture and the French language. Canadian governments of all political stripes have historically defended cultural exemptions as essential to preserving national identity in the face of overwhelming American media influence. This issue may appear symbolic, but it carries substantial political weight within Canada.
Finally, the Canadian government questioned the reliability of U.S. commitments. It as a question of trust. Carney stated that last-minute changes introduced by U.S. negotiators called into question the reliability of any agreement. Canadian officials argued that terms shifted repeatedly near the end of negotiations, making it difficult to conclude a stable and durable deal. The perception that the United States might revise commitments, something that President Trump has done before, would alter any agreement with an executive order became a major obstacle.
Why the Talks Ultimately Failed
The collapse appears to have resulted from a combination of economic and political factors rather than a single disagreement.
Economically, the two sides remained divided over automobiles, dairy, tariffs, and market access. Politically, both governments faced domestic constraints that limited their ability to compromise. Trump’s administration sought visible concessions that could be presented as victories for American workers, while Carney faced strong public pressure not to appear weak in negotiations.
Reports indicate that both sides accused the other of introducing new demands during the final stages of negotiations. U.S. officials claimed Canada sought additional concessions, while Canadian officials argued Washington fundamentally changed the deal’s terms at the last minute. Ultimately, neither side believed the final proposal adequately protected its interests.
Economic Consequences of the Trade War
The immediate consequences are relatively manageable because the tariffs affect only a portion of overall bilateral trade. Nevertheless, specific industries will face significant disruptions.
Canadian exporters in sectors such as dairy, furniture, cement, clothing, sporting goods, and consumer products will encounter higher costs and reduced competitiveness in the U.S. market.
Meanwhile, Canadian retaliatory tariffs are expected to target U.S. steel, dairy products, appliances, agricultural equipment, electronics, and other manufactured goods.
Because supply chains are highly integrated across the border, businesses in both countries can expect higher costs, reduced efficiency, and greater uncertainty. Investment decisions may also be delayed until greater policy stability returns.
Increased Economic Diversification
Canada is likely to intensify efforts to reduce dependence on the U.S. market by expanding trade relationships with Europe, Asia, and Indo-Pacific partners. Diversification has become a recurring theme in Canadian economic strategy.
Although geographic realities mean the United States will remain Canada’s most important trading partner, Ottawa may increasingly seek alternative markets.
Business groups on both sides of the border will likely become increasingly vocal. Manufacturers, agricultural producers, retailers, and logistics firms generally prefer stable trade conditions and are expected to lobby governments to resume negotiations. Historically, industry pressure has often helped drive eventual compromises.
From our vantage point Canada has some clear advantages. Approximately 60% of the goods imported from the U.S. are finished products, whereas only 40% of Canada’s exports fall into the same category. Which is to say, the U.S. will most likely target finished Canadian products which we can match dollar for dollar against the much larger U.S. manufacturing base.
The remaining Canadian exports – i.e. raw materials including critical minerals, oil, natural gas and electricity – are less likely to be attacked. Having said that, the U.S. has apparently developed closer ties with Venezuela and according to the Trump administration has signed a “deal” with that country to develop and import their vast oil reserves.
That is not necessarily a bad thing because Canada sells oil to the U.S. at a discount and could re-direct much of our surplus to other countries. Likely at higher prices.
That said, any deal with Venezuela is tentative since most of the major U.S. oil companies are reluctant to enter long-term commitments with a country that at some point in the future, could decide to nationalize their natural resources as occurred under the Chavez regime.
Moreover, even assuming there were hard-line leaders within the U.S. energy sector that were willing to roll the dice with Venezuela the re-construction would take years to complete. About as long as it would take for Canada to complete the new pipeline to the west coast.
NEXT STEPS
The forthcoming review and potential revision of the CUSMA may eventually provide an opportunity to restart broader negotiations. Both countries have incentives to modernize aspects of the agreement while preserving North American competitiveness.
While the current animosity looks suspiciously like a rupture, several practical steps could help rebuild trust and create conditions for renewed dialogue.
The first step is to establish interim confidence-building measures. Both governments could agree to temporary tariff freezes or limited sector-specific exemptions while talks continue. Such measures would reduce economic damage and demonstrate goodwill.
The next step would be to create sector-specific working groups dedicated to automobiles, dairy, energy, lumber, and critical minerals which could address technical disputes individually rather than attempting a comprehensive settlement all at once.
Next, negotiators should establish clearer procedures for modifying draft agreements and avoid introducing major changes during the final stages of talks. Much of the recent breakdown appears connected to disagreements over shifting terms.
Questions involving cultural protections, language rights, and future trade relationships are highly political. Treating these issues separately from tariff negotiations could help reduce tensions and facilitate progress on commercial matters.
It will be important to involve business, State and Provincial stakeholders. Canadian Provinces, U.S. States, industry associations, labor organizations, and major employers all have a stake in the outcome. Broader consultation could generate more sustainable solutions and reduce resistance to future agreements. Whether Mr. Trump is willing to listen is another question.
Rather than negotiating entirely outside existing institutions, the three participants in CUSMA could leverage dispute resolution mechanisms and review processes. Existing frameworks provide a structured path toward compromise.
Conclusion
The collapse of the 2026 U.S.-Canada trade talks represents one of the most serious setbacks in bilateral economic relations in recent decades. The immediate causes included disagreements over automobiles, market access, retaliatory tariffs, cultural protections, and Canada’s ability to pursue independent trade policies. Underlying these disputes was a deeper issue: a growing lack of trust between negotiating partners.
In the near term, the trade war is likely to intensify as both countries implement additional retaliatory measures. However, economic realities suggest that a prolonged confrontation is not in either nation’s long-term interest. With more than a trillion dollars in annual economic activity tied to North American trade and deeply integrated supply chains spanning both countries, business pressure and strategic necessity will, hopefully, push Washington and Ottawa back toward negotiation.
The path forward will require patience, transparency, and a willingness by both governments to balance domestic political concerns with the broader benefits of economic cooperation. If confidence-building measures can be established and future negotiations are conducted within a more stable framework, the current dispute could ultimately serve as the catalyst for a more durable and modernized North American trading relationship.
WHAT TRADE IMBALANCE?
When politicians, journalists, and economists discuss trade deficits between the United States and Canada, the conversation is often centered on goods such as automobiles, energy products, lumber, agricultural products, steel, and manufactured goods. However, focusing only on physical goods can create a misleading picture of the true economic relationship because it ignores the substantial flow of services between the two countries.
Services exports include activities such as financial services, insurance, banking, management consulting, software development, engineering, legal services, intellectual property licensing, telecommunications, transportation, cloud computing, professional services, and tourism. Unlike automobiles or oil, services are intangible and therefore receive far less public attention, even though they represent a significant and growing portion of modern economies.
Politicians typically focus on merchandise trade because goods are easy to measure and highly visible. A shipment of vehicles crossing the Gordie Howe bridge between Windsor and Detroit is recorded by customs authorities and appears immediately in trade statistics. It is easy to point to these figures when discussing trade imbalances.
For example, recent trade disputes between the United States and Canada have largely centered on automobiles, dairy products, lumber, steel, aluminum, and consumer goods. The problem is that is only one side of the ledger.
What gets lost in the debate is that services are a major U.S. strength. The United States has a significant competitive advantage in many service industries. American companies dominate numerous global markets, including financial services, investment banking, asset management, insurance, software and cloud computing, entertainment, professional consulting, engineering, intellectual property licensing and digital platforms.
Many Canadian businesses and consumers purchase these services from U.S.-based companies. A Canadian pension fund that hires a New York asset manager, a Canadian company that pays licensing fees to Microsoft, or a Canadian business using Amazon Web Services all represent Canadian imports of American services.
These transactions generate export revenue for the United States even though no physical product crosses the border and therefore is not part of the trade relationship calculation.
There are several reasons why service exports are often overlooked. Principally, services are less visible than manufactured products. People can easily see vehicles, machinery, or agricultural products crossing the border. Software subscriptions, legal advice, engineering designs, or cloud-computing contracts are far less obvious.
Political debates tend to focus on industries that employ large numbers of workers in concentrated geographic regions. Factory closures are visible and politically sensitive. By contrast, service exports are often spread across many sectors and locations.
Tariffs are generally designed to affect goods rather than services. Since recent U.S.-Canada disputes have centered on tariffs, public attention naturally gravitates toward physical products.
When President Trump talks about trade imbalances, embellished with some nasty hyperbole, he is focusing only on goods trade imbalances which is the export of physical products minus the imports of physical products which equals trade surplus or deficit.
Worse still, is that President Trump assumes that a deficit in goods trade automatically means one country is losing economically. In reality, economists emphasize that deficits can also reflect strength, not weakness. A deficit implies strong consumer demand, high national income and a market that is attractive to foreign investors.
The U.S. runs large goods deficits because it has a strong economy and the U.S. currency is trusted globally.
The real question comes down to what is driving the deficit? If it is the result of declining competitiveness, unsustainable borrowing, and structural deindustrialization, then it has a negative effect on future growth expectations.
Deficits are benign or even beneficial when they reflect positive investment inflows driven by outsized domestic demand and a general shift toward high‑value services exports.
Putting this in the context of North American trade, the U.S. goods deficit with Canada is almost entirely an energy story. When you remove energy from the calculation, the numbers look very different. In fact, the U.S. runs a large surplus with Canada ex-energy.
All of which is to say, contrary to President Trump’s position, the U.S. goods deficit with Canada does not indicate economic loss. It reflects supply‑chain integration where Canadian raw materials fuel U.S. manufacturing, jobs, and exports. This is the opposite of “losing.”
The U.S. is leveraging Canadian resources to strengthen its own industrial output, employment, and export competitiveness. The goods deficit with Canada reflects energy dependence, not industrial decline, integrated supply chains, not loss of competitiveness, growing strength in services and manufacturing, not weakness. If anything, the U.S.–Canada trade relationship makes U.S. industry stronger, not weaker.
That aside, the inclusion of Services exports in the discussion renders the energy debate moot. When you consider Goods exports plus Services exports minus Goods imports plus Services imports, a country’s a deficit in goods which in the U.S. / Canada case, is more than offset by a surplus in Services. The result is the U.S. is running a trade surplus with Canada even when you include energy imports.
Implications for the Current Trade Dispute
The recent collapse of trade negotiations has focused largely on tariffs affecting roughly $20 billion of Canadian goods exports, as well as disputes involving automobiles, dairy products, steel, aluminum, and market access.
However, the broader economic relationship extends well beyond these sectors. American firms continue to sell substantial amounts of financial, technological, and professional services into the Canadian economy regardless of whether physical goods are subject to tariffs.
This means that focusing exclusively on merchandise trade can exaggerate perceptions of economic imbalance and obscure the degree to which both countries benefit from a highly integrated North American marketplace.
Conclusion
Trade imbalances between the United States and Canada are often discussed as though they involve only physical products. But this represents only part of the story. The United States is a major exporter of services which generate significant revenue from Canadian customers and help offset merchandise trade imbalances.
As the economy becomes increasingly digital and knowledge-based, service exports will likely become an even more important component of the U.S.-Canada relationship. Any assessment of trade balances that ignores services risks provides an incomplete and potentially misleading view of who benefits from trade and by how much.
NAVIGATING THE FALLOUT
The collapse of the U.S.–Canada trade deal and the subsequent escalation into a full‑blown trade war marks one of the most consequential economic ruptures and challenging investment climates in modern Canadian history. The question is no longer whether the fallout will affect Canadian portfolios; it is how deeply, how unevenly, and for how long.
The good news is that Canadian investors are not powerless. The trade war reshapes the landscape, but it also clarifies it. The next decade will reward those who understand the structural shifts underway and position themselves accordingly. The challenge is separating noise from signal, political theatrics from economic reality, and short‑term volatility from long‑term opportunity.
It comes down to what Wayne Gretzky is credited with saying, “look at where the puck is going not where it is.” That means ignoring the disjointed bluster coming from the Trump administration. Recognizing that trying to change the name of a Great Lake to an American symbol should be seen for what it is… political gamesmanship.
Focus on the reality of the situation. This is a structural shift not a temporary disruption. The trade war represents a structural realignment of North American economic priorities. The U.S. has signalled that its industrial policy will prioritize domestic production, domestic labour, and domestic political optics. Canada, meanwhile, is recalibrating its own strategy, seeking new partners, diversifying supply chains, and accelerating domestic capacity in sectors long overshadowed by American dominance.
For investors, this means the old playbook of “North America as one integrated market” is no longer reliable. The new environment is defined by fragmentation, competition, and selective cooperation. Portfolios must reflect that reality.
Tit-for-tat tariffs are inflationary by design. Tariffs raise costs. Supply chain rerouting raises costs. Political uncertainty raises costs. Canadian investors should expect higher input prices for manufacturers,
slower cross‑border logistics, reduced competitiveness for export‑dependent sectors and more volatile currency movements.
This volatility is not inherently negative as it creates opportunities for disciplined investors. But to benefit from greater volatility requires a shift in mindset. The era of smooth, predictable trade flows is over. The era of jagged, politically influenced economic cycles has begun.
Much of this work has already taken place in our efforts to look where the puck is going. We have already reduced exposure to trade‑sensitive sectors. This generally mean companies that export finished products to the U.S.. Forestry, autos and consumers goods fall into this category.
None of these sectors are doomed. But they are no longer “set‑and‑forget” holdings. They require active monitoring, scenario planning, and a willingness to trim exposure when political risk outweighs economic fundamentals.
We are leaning into companies that sell products domestically. They benefit from east-west rather than north-south trade. These companies will benefit from counter-tariffs that will reduce competition from foreign manufacturers. Trade wars don’t just create losers; they also create winners.
Canada has several structural advantages that become more valuable in a decoupled North American economy. Think critical minerals, clean energy infrastructure, agriculture, food security technologies, AI, fintech, and digital services.
These sectors benefit from global demand, government incentives, and reduced reliance on U.S. trade flows. They also align with Canada’s long‑term strategic priorities: energy transition, technological competitiveness, and supply chain resilience. Investors should view these areas not as speculative plays but as emerging pillars of Canada’s next economic chapter.
There is a case for diversifying internationally. But to do so requires discipline and at this moment our view is that diversification beyond North America is akin to throwing the baby out with the bath water. The instinct to “look elsewhere” is correct but only partially. Diversification is essential, but indiscriminate diversification is dangerous.
We expect more activity from the Canadian government. Trade wars inevitably expand government involvement in the economy. Canada will likely increase industrial subsidies, make strategic investments, expand export diversification programs, create domestic manufacturing incentives and invest in critical‑mineral development.
We are paying close attention to federal and provincial policy announcements. Government direction will shape sector performance more than usual. In some cases, policy will create investable tailwinds; in others, it will create regulatory headwinds. Understanding the policy landscape becomes a competitive advantage.
Some of our investment pools have increased cash holdings to maintain flexibility. This should be seen as risk management not capitulation. Cash is not a drag if it is used tactically. Trade wars produce moments of panic, overreaction, and mispricing. Investors with liquidity and discipline will benefit.
The Canadian dollar has been notably stable despite trade tensions. That does not mean that it will continue to ignore further tariff announcements. However, the Canadian dollar is most sensitive to commodity prices, and we think they will remain tariff free for the foreseeable future.
We remained focused on blue chip companies that are resilient and have strong balance sheets. Think about Canadian banks and insurance companies within that context. Canadian banks are particularly interesting because they have U.S. branch networks for diversification and will be key players in the distribution of government subsidies. Trade wars are a stress test. Quality companies pass stress tests.
The real key to managing within a challenging environment is to maintain a long-term perspective. Remember this is a structural shift not a terminal one. Canada remains a stable, resource‑rich, innovative economy with strong institutions and global relevance.
Summary
The U.S.–Canada trade war is a defining moment for Canadian investors. It introduces volatility, disrupts old assumptions, and forces a strategic rethink. But it also creates opportunity as we explore “strange new worlds,” new sectors, new markets that over time will enhance our competitive advantages and maintain our sovereignty.
The investors who thrive will be those who adapt early, diversify intelligently, and stay disciplined. The ones who struggle will be those who cling to the old North American playbook.
This is not the end of Canadian prosperity. It is the beginning of a new chapter. One that rewards clarity, resilience, and strategic foresight.
SEPTEMBER STORM
September is persistently a month when financial markets underperform. Some believe it to be more than market folklore. While other seasonal patterns such as the January effect, the Santa Claus rally, “sell in May and go away,” are not consistently supported by historical data, the so‑called September Effect has consistently delivered weaker returns, higher volatility, and more abrupt sentiment shifts than any other month.
It begs the question… why? What makes September uniquely difficult for investors? The answer lies in a combination of behavioral dynamics, institutional flows, macroeconomic realities, and structural features of the financial calendar that converge in a way no other month does.
Before exploring the cause and effect, we should acknowledge the empirical foundation. Over the past century, the S&P 500 has averaged negative returns in September which is the only month with such a record. And the U.S. indexes are not alone. This pattern persists across global markets, including Canada’s TSX, Europe’s STOXX indices, and emerging markets. While no seasonal trend is perfectly reliable, the consistency of September’s underperformance is striking.
But history alone doesn’t explain the phenomenon. Markets don’t move because of superstition. They move because of incentives, information, and human behavior. And September is where several of these forces collide.
One of the simplest explanations is also one of the most overlooked: September is the month when investors return from summer and begin paying attention again. The summer months are typically quieter. Trading volumes typically decline, corporate news slows, as many institutional decision‑makers are in holiday mode. Markets drift more than they trend. But when September arrives, the lull ends abruptly.
Portfolio managers return to their desks. Analysts update models. Corporations resume announcements. Governments release new data. And investors begin reassessing risk with fresh eyes.
This sudden re-engagement generally results in portfolio re-balancing as valuations are re-assessed and risk reduction takes center stage. Sometimes, it can be as simple as profit taking profits after summer rallies. Which is to say, September is the time when investors stop coasting and start a recalibration process that often reveals more risks than opportunities.
September also resides at a critical point in the financial calendar. For many mutual funds, pension plans, and institutional investors, the fiscal year ends in October. That means September is the last full month to adjust positions before performance is locked in.
This creates several pressures as managers window dress their portfolios by selling underperforming positions to avoid showing them in year‑end reports.
Tax planning is also important especially for retail investors. Investors begin harvesting losses or gains depending on their tax strategy. Since many retail investors hold mutual funds that has a knock-off impact where managers sell assets to increase liquidity in the face of potential redemptions. These flows can create selling pressure, distort prices, and increase volatility. September becomes a month of forced moves rather than strategic ones, and markets often react poorly to forced moves.
Underperforming one’s benchmark is also critical. Managers who are trailing their benchmarks may play catch up by taking on greater risk or become more conservative to avoid further underperformance.
September is also when the economic narrative generally shifts. The first half of the year tends to be optimistic as companies issue guidance based more on hope than reality, consumers spend, and governments release budgets. But by late summer, cracks begin to show.
Key macroeconomic indicators tend to weaken heading into September. Note the recent backlash created by the reality among investors that the U.S. government owes more than US $40 trillion in net debt.
Consumer spending slows after summer travel, manufacturing data softens, hiring tends to slow as seasonal jobs end, corporate earnings begin to wain, and Governments begin releasing updated fiscal projections.
All of which creates a backdrop where investors confront the reality of the economic cycle rather than the hope of the new year. And because September is the first month when this data is digested at full institutional attention, the reaction can be sharp.
The Federal Reserve and Central Banks tend to reassert their positions heading into September as witnessed by Kevin Warsh’s speech at Jackson Hole. That plays an outsized role in market psychology, and September is one of their most consequential months.
Following the Jackson Hole summit, the U.S. Federal Reserve, Bank of Canada, and European Central Bank often reset their policy agendas. These meetings often include updated economic projections, revised interest rate paths and inflation outlooks whether telegraphed for broader analysis or kept hidden as is currently the U.S. Federal Reserves path of least resistance. Either way, these discussions propel policy guidance for the remainder of the year
Markets that drifted through summer suddenly face the possibility of rate hikes, hawkish commentary, or downward revisions to growth. Even when central banks do nothing, the anticipation alone can elevate volatility.
Corporations also treat September as a pivot point. After the lazy days of summer, companies begin to issue profit warnings, revise guidance and when required, announce layoffs or restructuring ahead of third quarter earnings releases.
Because Q3 earnings are historically weak, September becomes the month when bad news begins to surface. Investors who grew comfortable during the summer are forced to confront deteriorating fundamentals.
Behavioral biases amplify the pattern because humans are rarely rational, and markets reflect human psychology. September triggers several well‑documented behavioral biases such as loss aversion (i.e., sensitivity to downside risk), anchoring (disappointing comparisons to January expectations), herding (institutional selling triggers retail follow through) and seasonal sentiment which can cause the “September Effect” to become a self‑fulfilling prophecy. That latter point leads to a knock-on effect where investors expecting higher volatility, behave in ways that create higher volatility.
Several structural features of markets make September uniquely fragile. There are more option expirations, bond issuance increases, corporate buybacks slow after blackout periods, Government funding debates (especially in the U.S.) intensify. In some years, student loan payments resume which impacts consumer spending.
Conclusion
September is difficult not because markets are cursed, but because it is the month when investors must confront reality. The summer’s optimism fades, the fiscal calendar tightens, economic data darkens, and institutional flows become more forceful. It is a month of reassessment, repositioning, and recalibration and these processes rarely produce smooth market outcomes.
The key for investors is not to fear September but to understand it. Markets behave differently when attention returns, when liquidity shifts, and when the narrative changes. September is challenging because it is honest. It reveals what the rest of the year only hints at.
THE FLAWED IRANIAN STRATEGY
The Iranian economy is one of the most paradoxical and politically entangled systems on the planet. It is resilient yet distorted, entrepreneurial yet constrained, rich in resources yet suffocated by sanctions. To grasp how Iran behaves in moments of geopolitical crisis, you must understand the economic architecture that shapes daily life, the motivations of a population accustomed to navigating constraints, and the outsized influence of its religious leadership. Only then do the deeper flaws in the U.S.–Iran conflict come into focus.
The backbone of the Iranian economy is its vast reserves of oil and gas. Oil was discovered in 1908, leading to the creation of the Anglo‑Persian Oil Company which later became British Petroleum. That meant that for decades, foreigners-controlled Iran’s most valuable resource. The nationalization attempt by Prime Minister Mohammad Mosaddegh in 1951, followed by the 1953 coup, cemented oil as both an economic engine and a political flashpoint.
Today, oil remains central to Iran’s economic identity. Even under sanctions, Iran continues to export oil through complex networks, regional partnerships, and informal channels. Oil revenue supports government spending, subsidizes domestic industries, and funds the military and security apparatus.
Despite its dependence on oil, Iran has built a surprisingly diversified domestic economy. According to Al Jazeera’s reporting, Iran’s economy has remained functional even after five months of war with the United States, thanks to decades of forced self‑sufficiency. Millions of Iranians struggle economically, but the country has avoided collapse due to its broad base of domestic production and internal markets.
To promote domestic production, Iran has spent decades diversifying its economy. This diversification includes developing a solid agricultural base (Iran is a major producer of pistachios, saffron, fruits, and grains), manufacturing (automobiles, steel, cement, and household goods), petrochemicals (a major export sector beyond crude oil), services and retail (the country has a significant consumer base of more than 92 million people).
Sanctions have shaped Iran’s economy as much as oil has. The World Bank notes that Iran has sustained growth amid rising geopolitical tensions, but this growth is moderate and fragile. Sanctions have limited foreign investment, restricted access to global banking, forced domestic innovation, encouraged smuggling networks and strengthened state‑linked economic actors. Paradoxically, sanctions have also protected certain domestic industries by limiting foreign competition.
One of the most important, and least understood drivers of Iran’s economic structure, is the Islamic Revolutionary Guard Corps (IRGC). Analysts estimate that IRGC‑linked corporations and organizations account for 50% of Iran’s GDP. This makes the IRGC a dominant employer, a major contractor in construction, energy, and infrastructure, a gatekeeper for foreign investment and a political force with economic leverage.
The IRGC’s economic role discourages internal revolt because millions of livelihoods depend on its network. This is a critical factor in Iran’s political stability and its war posture.
Interestingly, Iranian society has a long tradition of entrepreneurship, dating back to bazaar culture which is the merchant networks that serve as both economic and political institutions. Today, this entrepreneurial spirit is shaped by necessity.
Sanctions, inflation, and currency volatility have forced Iranians to be resourceful. The population has become comfortable with risk, and the private intertwined networks have provided the necessary skills to develop and navigate informal markets.
According to an Al Jazeera report, the Iranian population and business community have become adept at managing under pressure. Small and medium‑sized enterprises dominate the Iranian economy. These businesses thrive because they operate informally, rely on local supply chains, are less exposed to sanctions and can pivot quickly during a crisis. Entrepreneurship is often a family affair, with multi‑generational businesses in retail, manufacturing, and services.
Another little-known fact is that despite restrictions, Iran has a vibrant tech scene. Local versions of ride‑sharing apps, e‑commerce platforms, fintech solutions and digital content creation. The younger generation is highly educated, digitally savvy, and globally aware. Despite restrictions that limit access to western platforms.
Entrepreneurship in Iran is not just economic. It is a cultural phenomenon because it represents – at least in theory – independence, social mobility, resistance to state control and a way to navigate political constraints. This spirit coexists within limits against the authority of religious leadership.
And there lies the rub which has led to so much internal unrest. Religious leadership has an outsized influence on economic life. Iran’s religious leadership, headed by the Supreme Leader, exerts influence over the economy through Bonyads (religious charitable foundations), State‑owned enterprises, IRGC’s economic empire and complete control of oil revenue allocation.
Which is to say, religious authority and military power supported by Iran’s “theocracy” and “invisible hands” controls the bulk of economic output.
To that point, Bonyads are the nexus of religious‑economic power. Bonyads are massive charitable foundations that control large sectors of the economy, are tax-exempt, are only accountable to the Supreme Leader, provide the bulk of welfare services and fund religious and political activities. They are central to the intertwining of religion and economics.
The religious leadership uses economic control to maintain legitimacy. It provides subsidies that create loyalty and offers welfare programs to support the poor. It’s religious messaging frames economic hardship as resistance and it controls key industries to prevent political rivals from gaining power. This structure reinforces the state’s ability to withstand external pressure, including war.
Entrepreneurs must operate within a theocratic system where religious norms influence business practices and State‑linked entities dominate major industries. Corruption and favoritism are common which means that successful entrepreneurs must navigate religious and political networks or work within informal markets outside of State control. Unfortunately, this creates a dual reality in which dynamic entrepreneurial culture is constrained by a powerful religious‑political elite.
Coming full circle leads to the question about how these factors shape Iran’s war posture. The short answer is Iran has the capacity to endure conflict which makes any peace talks with the U.S. challenging.
According to Al Jazeera, Iran’s economy has remained functional despite five months of war with the United States. All of which makes any settlement talks difficult. A large domestic market, diversified production, sanction‑hardened supply chains, IRGC economic control, religious messaging that frames conflict as resistance and a population accustomed to hardship means that Iran can sustain conflict longer than many analysts initially expected.
What we know based on reliable sources is that Iran’s economy is not collapsing despite war pressure. The IRGC’s economic dominance discourages internal revolt and the religious leadership uses economic hardship to reinforce ideological unity.
The World Bank notes Iran can sustain moderate growth even amid geopolitical tension which implies there is a strong probability that Iran can continue the conflict for months, especially if the leadership believes endurance strengthens its negotiating position or ideological legitimacy.
Iran’s willingness to negotiate an end to the conflict will likely hinge on whether it can withstand further economic pressure. Clearly, Iran can absorb significant hardship, but prolonged war will eventually strain the population.
What we know is the IRGC benefits from conflict-driven nationalism and economic control. We know that the religious leadership will frame any negotiation through the lens of survival and ideology rather than just economics. We also recognize that the population while resilient, is facing real hardship. With their back against the wall, Iran will have to trust that international alliances will remain robust and that oil will continue to find its way through a powerful U.S. blockade.
In our view, Iran is unlikely to retreat quietly, but negotiation becomes plausible if a prolonged conflict begins to threaten regime stability, economic pressure reaches a critical threshold, and the religious leadership can present compromise as a strategic triumph rather than a capitulation. Based on current evidence, the probability of negotiation is moderate, but any meaningful off‑ramp remains distant and difficult to achieve.
Bottom Line
Iran’s economy is a complex blend of resource wealth, sanctions‑driven adaptation, entrepreneurial resilience, and religious‑political control. Growth is driven by oil, domestic diversification, and the massive economic influence of the IRGC. The Iranian people exhibit a strong entrepreneurial spirit shaped by necessity, culture, and decades of economic pressure.
Religious leadership intertwines deeply with economic life, using bonyads, subsidies, and ideological messaging to maintain control and legitimacy. This structure gives Iran the capacity to endure prolonged conflict, making a year‑long war with the United States plausible.
However, Iran’s leadership is also pragmatic. While unlikely to capitulate, it may negotiate if doing so preserves regime stability and can be framed as a strategic, not ideological, concession.
THE KYIV RED‑HERRING THEORY
In geopolitics, what is said publicly often matters less than what is being prepared privately. States telegraph, misdirect, posture, and perform, not because they enjoy theatrics, but because perception is a tool of war.
In 2026, as tensions between Russia and NATO escalate, one narrative has gained traction: the fear that Russia may strike a NATO member and trigger Article 5, plunging Europe into a broader conflict. It is a chilling prospect, and one that understandably dominates headlines. But there is a growing possibility that this fear – amplified, repeated, and strategically convenient – may be a red herring. The real objective may lie elsewhere… Kyiv.
To be clear, Russia’s invasion of Ukraine in 2022 was a grave act of aggression that resulted in immense human suffering and widespread human rights violations. Any analysis of Russian military strategy must acknowledge the profound harm inflicted on civilians and the destabilizing impact on global security. But understanding Russia’s intentions is essential for anticipating future risks, and one hypothesis deserves closer scrutiny: that Moscow’s sabre-rattling toward NATO may be designed not to prepare for an attack on a member state, but to distract from preparations for a renewed offensive aimed at Ukraine’s capital.
The idea of Russia striking a NATO member is terrifying and Russia knows it. It is the kind of threat that forces Western governments to divert attention, resources, and political bandwidth. It compels military planners to reinforce borders, reposition assets, and prepare for worst‑case scenarios. It creates urgency, noise, and confusion. Which is to say it creates distraction.
A red herring in geopolitics is not merely a false lead; it is a strategic decoy. By amplifying fears of a NATO confrontation, Russia may be shaping Western expectations in a way that obscures its true operational priorities. If NATO is bracing for an attack on Poland or the Baltics, it may be less focused on the possibility of a renewed thrust toward Kyiv. And Kyiv, despite years of war, remains symbolically and strategically central to Russia’s ambitions.
Kyiv is not just a city; it is the political, cultural, and psychological heart of Ukraine. For Russia, capturing Kyiv would represent a decisive blow to Ukrainian sovereignty, a symbolic victory that could be sold domestically, a bargaining chip in any future negotiations and a way to fracture Western unity by presenting a “fait accompli”
Despite battlefield setbacks, Russia has never abandoned its maximalist goals. Its rhetoric continues to frame Ukraine as a territory whose independence is illegitimate. And while Russia has shifted to grinding territorial advances in the east and south, the strategic logic of targeting Kyiv remains intact.
The recent surge in warnings about a potential Russian strike on a NATO member has emerged at a moment when Russia faces several pressures. Ukrainian forces have regained limited territory at a time when western aid packages are being debated and delayed. Moscow needs to maintain the perception of strength at a time when the Russian economy is strained by sanctions.
Threatening NATO elevates Russia’s perceived power which allows Putin to project boldness and unpredictability. If NATO must prepare for a direct attack, it may allocate fewer resources to Ukraine. It creates political friction within the alliance. Some NATO members may push for de‑escalation, others for deterrence which is a dynamic that Russia can exploit. It provides cover for troop movements Russia can reposition forces under the guise of preparing for confrontation with NATO, while preparing for operations in Ukraine.
This is classic state craft. Create a loud, alarming narrative to hide a quieter, more consequential one.
While evidence is scarce, some patterns give credence to the Kyiv offensive theory.
Some analysts have observed Russian troop rotations and logistical buildups that resemble preparations for a large‑scale operation. These movements are not concentrated near NATO borders but rather in regions that could support a push toward central Ukraine.
Russia has increased long‑range strikes on Kyiv’s energy grid, command‑and‑control nodes and transportation hubs. These are shaping operations that typically precede ground offensives.
Russian state media has intensified messaging about Kyiv’s “inevitable fall,” a narrative that typically accompanies military planning.
Russia has framed Ukraine as the primary obstacle to “regional stability,” a rhetorical shift away from NATO‑focused messaging.
None of these indicators prove an imminent attack on Kyiv. But they do raise questions about whether the NATO threat narrative is overshadowing more relevant signals.
If Russia intends to move on Kyiv, distracting NATO is essential. A focused, unified NATO is a formidable deterrent. A NATO alliance preoccupied with defending its own borders may be slower to respond to developments in Ukraine.
Moreover, Western political cycles in 2026 are turbulent. Elections, budget debates, and domestic priorities have already slowed aid flows. A dramatic narrative about a potential NATO strike could further complicate decision‑making, creating the kind of strategic fog Russia thrives in.
The danger for Western policymakers is not that Russia will strike NATO – although that possibility must be taken seriously – but that they may over‑index on that threat while underestimating Russia’s intentions in Ukraine.
If the NATO threat is a red herring, the real risk is strategic surprise. Kyiv has been attacked before. It could be attacked again. And if Russia believes that Western attention is divided, it may see an opportunity to reshape the battlefield.
Conclusion: The Importance of Seeing Through the Fog
Geopolitics is a game of signals, noise, and deception. Russia has repeatedly used misdirection to achieve strategic goals, and the current narrative about a potential strike on a NATO member may be another example. While NATO must remain vigilant, it must also avoid being distracted from the possibility that Russia’s true objective remains Kyiv.
The cost of misreading Russia’s intentions is high. The stakes for Ukraine, for Europe, and for global stability are enormous. In 2026, the challenge is not only to prepare for the threats Russia announces, but to anticipate the ones it hides.
CALM VERSUS CHAOS
The fantasy for most investors is to remain calm while making investment decisions. Forget meditation apps, scented candles, or whatever wellness trend involves submerging yourself in ice, the real modern obsession is staying calm at all costs. We want calm homes, calm jobs, calm relationships, and most importantly, we want to remain calm when making financial decisions. If modern life had a mascot, it would be someone whispering “I’m fine” while their portfolio burns quietly in the background.
But calm isn’t free. In fact, it’s often the most expensive thing to buy. It is the kind of expense that shows up on your credit card statement and makes you say, “Did I really buy that?” In 2026, with markets behaving like caffeinated squirrels, inflation refusing to leave the party, and technology disrupting everything from banking to your toaster, the cost of calm has become a defining theme. It’s no longer philosophical; it’s economic, political, and occasionally the reason you stare at your brokerage app like it personally insulted your family.
Calm, at its core, is simply the avoidance of chaos. It’s the desire to dodge volatility, uncertainty, and emotional turbulence. In markets, this often translates into behaviours that feel safe but quietly sabotage long‑term outcomes. The investor who hoards cash like it’s a rare Pokémon card, the retiree who withdraws so cautiously they might outlive their own spending plan, the worker who avoids career risk like it’s a pothole, the consumer who pays extra for convenience because “stress is bad.” In each case you are dealing with stressors by paying a calm tax. The question is whether the tax is worth it, or whether we’re all just paying a premium for emotional bubble wrap.
Calm often leads to under‑investment. Investors terrified of volatility sit on the sidelines waiting for “certainty,” which is adorable because markets haven’t offered certainty since approximately never. They miss compounding, rebounds, and the magical phenomenon known as “letting time do the work.”
In 2026, this behaviour is everywhere. After inflation shocks, geopolitical drama, and enough market plot twists to rival a prestige TV series, many investors have retreated into cash and short‑term instruments. The yields look nice, the risk feels low, and the emotional relief is real. But calm here is a trap. Cash doesn’t protect purchasing power over long horizons. Short‑term instruments don’t build wealth. The cost of calm is the opportunity cost of growth and opportunity cost is the villain investors never see coming until it’s already stolen their future returns and eaten their lunch.
Calm creates fragility. The human psyche becomes ill‑prepared for stress. Take the household that avoids budgeting because it feels “stressful.” The calm of not confronting spending patterns leads to panic when an unexpected expense arrives, like the car deciding it’s done with life or the dog developing a taste for artisanal vet bills.
Or consider companies that avoid restructuring because it’s uncomfortable. The calm of maintaining the status quo leads to inefficiency, bloated costs, and competitive decline. Calm masquerades as stability, but often it’s just stagnation wearing noise‑canceling headphones.
Calm can dull ambition, creativity, and resilience. When chaos is avoided at all costs, the muscles required to navigate uncertainty atrophy.
Investors who panic at every downturn often do so because they’ve never built the emotional tolerance required to withstand volatility. Workers who avoid challenging roles plateau. Entrepreneurs who avoid risk never discover their potential. Calm, ironically, makes people less capable of handling the chaos they fear in the same way as someone who avoids exercise and then wonders why stairs feel like Everest.
In markets, calm is most visible in risk‑aversion cycles. Investors flock to defensive sectors, high‑yield savings, short‑duration bonds, and large‑cap stalwarts. These assets become crowded, valuations stretch, and future returns shrink.
Meanwhile, chaos which implies volatility, uncertainty and complexity, often hides opportunity. Small‑cap innovators, emerging markets, distressed credit, and early‑stage technologies frequently offer outsized returns precisely because they are uncomfortable. The cost of calm is missing the party where the real gains happen.
Calm also shapes consumer behaviour. In search of calm, we engage in convenience spending with overnight delivery, subscription services that re-supply products on a regular basis and premium brands that promise longevity. Which is to say, consumers pay more to avoid friction. But the cumulative cost of calm is substantial. Households spend more, save less, and accumulate fewer assets. The calm economy, built on ease and immediacy, extracts a toll that compounds over time.
In 2026, with inflation still lurking, the premium on calm is rising. The question becomes: is the convenience worth the erosion of financial resilience? Or is paying $18 for a sandwich delivery the modern equivalent of lighting money on fire?
Calm can even warp society. People seek information that confirms their beliefs and avoid perspectives that challenge them. In markets, this becomes echo chambers or rabbit holes, as investors gravitate toward narratives that feel soothing rather than data that is accurate. Calm becomes a filter that distorts reality. The cost is poor decision‑making, mispriced risk, and vulnerability to shocks.
Calm isn’t inherently bad. It’s a human need, a stabilizing force, and a legitimate goal. The problem arises when calm becomes the default rather than the reward. Calm should be earned through preparation, discipline, and resilience. It is not a de-facto outcome purchased through avoidance.
The healthiest portfolios, careers, and households balance calm with productive chaos. They embrace volatility where it is rewarded, take risks where justified, and endure short‑term strain for long‑term gain.
The antidote to the cost of calm is intentional chaos, not reckless risk‑taking. For investors, this may mean increasing equity exposure, exploring alternatives, or tolerating volatility. For households, it may mean budgeting or saving aggressively. For workers, it may mean pursuing challenging roles. For companies, it may mean innovating or restructuring.
Chaos builds resilience. It strengthens the capacity to navigate uncertainty. It expands opportunity, and it reduces the long‑term cost of calm by ensuring calm is sustainable rather than fragile.
In 2026, the cost of calm is rising. Inflation makes calm more expensive. Market volatility makes calm more tempting. Technological disruption makes calm more elusive. But those who thrive will be the ones who understand that calm is not free. It must be weighed, measured, and earned.
The cost of calm is ultimately the cost of avoiding the very forces that create growth, resilience, and progress. Chaos isn’t the enemy; it’s the engine. And those who learn to harness it will find that calm, when it finally arrives, is not only sweeter but far less costly.
Richard N Croft, Chief Investment Officer