Key Takeaways
Portfolio Managers Brief — August 2026
Three of June’s four questions now have answers
- Inflation has peaked.
- Corporate earnings justified the valuations markets were carrying.
- AI-related capital spending held.
- The fourth remains open: how central banks balance an inflation rate that is improving but still above target, against an economy showing signs of strain beneath the surface.
The inflation peak is behind us, though not the pressure
- Prices have eased for two consecutive months.
- Inflation remains above the two per cent target central banks aim for.
- Energy and food are both expected to keep costs elevated.
- We are positioned for a slower path back to normal.
A new Fed, offering less warning
- New leadership has brought a new approach, with the committee openly divided.
- Less guidance is being provided to markets in advance.
- We expect sharper moves around each rate decision and each inflation release.
- Rather than guess at the Fed’s next move, we build portfolios that hold up either way.
Earnings, not optimism, funded this year’s returns
- Most companies exceeded analyst expectations this reporting season.
- The banks in particular delivered an exceptional quarter.
- Gains funded by genuine earnings growth are a more durable foundation.
- Lifted expectations for next year leave less room for disappointment.
Market leadership has broadened
- The Canadian market and the Nasdaq are now running side by side.
- Canada has closed a wide gap since June.
- Beneath the index level, the gap between the small group of companies driving the gains and everyone else has narrowed considerably.
Strength at the top, strain underneath
- Higher-income households continue to spend, supported by rising asset values.
- The broader public has become considerably more price sensitive.
- National averages obscure that divide.
- It continues to shape the businesses we favour.
Canada has turned a corner
- Recession concerns have faded.
- The labour market has improved for three consecutive months.
- Our market has been among the strongest globally this year.
- Trade negotiations with the United States remain the outstanding risk, and we are monitoring them closely.
Two deliberate changes within our core models
- Reduced equity exposure back to target following a strong run.
- Shortened duration within fixed income and eliminated our corporate credit exposure.
- The result is greater downside protection, with capital available to redeploy into equities should markets present an opportunity.
Four themes we continue to watch
- Energy supply constrained against rising demand, particularly in refined products.
- Whether AI-related capital spending gets ahead of itself, given how much is funded through borrowing.
- The rising cost of capital as governments and corporations compete for the same funding.
- Tariffs and where inflation ultimately settles.
Where that leaves us
- Positive on equities.
- Selective in our positioning.
- Disciplined in what we are willing to pay.