Optimism amid uncertainty

Headline-driven quarter

Global markets entered 2026 with an important reminder for investors: quarters don’t always unfold in a neat, linear way. The first quarter was decidedly headline-driven, as investor concerns about policy, geopolitics, and technology disruption led to higher day-to-day volatility.

In Canada, equity markets proved relatively resilient, helped by the S&P/TSX Composite Index’s resource tilt. Energy was the strongest sector, while information technology lagged, highlighting how sector mix can materially influence portfolio performance.

In the U.S., markets were choppy and highly rotational. By mid-February, the S&P 500 was close to flat year-to-date, but it ultimately finished the quarter lower after retreating in late February and March as military developments in the Middle East affected investor sentiment. European markets also reversed late in the quarter.

With the escalation of violence in the Middle East, geopolitical risk is once again injecting uncertainty into the outlook, as energy supply disruptions have pushed oil prices higher and renewed inflationary concerns.

During times of market volatility, as we saw in Q1, diversified portfolios often produce mixed results as assets and equity markets across regions move in different directions. But that dispersion is by design, as diversification reduces reliance on any single outcome and supports resilience across shifting market conditions. Within this mix, equities provide long-term growth potential, while high quality fixed income adds value through renewed income and downside cushioning during periods of equity weakness.

A key development during the quarter came on the trade front, as the U.S. Supreme Court in February struck down U.S. “reciprocal” and certain other tariffs, removing a major source of uncertainty while introducing new questions about what trade policy could look like going forward. 

Also of note was the continued broadening beyond the “Magnificent Seven” mega-cap technology stocks, as we saw returns in Q1 driven by a wider range of sectors and regions. We see this as generally a positive for investors as it reduces reliance on a small number of names.

Looking ahead, the base case remains positive, though we expect volatility will likely continue. Key points of focus will be the path of interest rates, the pace and profitability of AI investment, and geopolitical and energy-related developments. In this environment, diversification across regions, sectors and asset classes remains essential to reduce dependence on any single scenario. For a deeper look at how diversification can help manage uncertainty, learn more here.