Spring 2026 Market Update
Over the past few months, markets have mostly been adding to the strong gains we saw in 2024 and 2025, just in a bumpier, more grown‑up way. Global stock markets are still getting support from decent economic growth and the idea that interest rates will likely continue to come down over time, but the returns haven’t been as eye‑catching as last year.
Here in Canada, the TSX Composite has rolled into 2026 off an excellent 2025, when it led the major North American markets. More recently, the ride has been positive but choppier as investors wrestle with higher valuations, changing views on central bank moves, and a mix of strong and weak economic data. Lastly, geopolitical tensions, which encompasses a broad range of factors, are also contributing to the recent choppiness.
Special Update: Operation Epic Fury
This past weekend, we all witnessed the start of a new “war” in the Middle East, one the U.S. military depicts as “Operation Epic Fury”. Although there was a muted market reaction as the markets opened Monday, the spreading of Iranian attacks across Gulf countries and choice words from the President, caused for increased volatility at the open of Tuesday’s markets.
So, what could this mean for the markets in the near term? Geopolitical conflicts tend to move markets through oil prices and risk sentiment, but the impact varies widely depending on how long the disruption lasts, how severe it is, and whether markets had already priced in the risk. Past episodes show no single pattern: the Gulf War caused a brief oil spike, the Iraq War saw prices fall because the risk premium was already embedded, and the Russia–Ukraine conflict created both a short‑term surge and a year‑long price premium. The common thread is that markets react less to the conflict itself and more to whether it creates a sustained supply shock.
For central banks, a conflict‑driven oil shock complicates policy because it raises inflation while weakening growth. However, oil price shocks are less impactful to the U.S. economy now than in previous years, as they are net exporters of crude oil. So, the U.S. central bank may not hike rates because of the conflict, but higher oil could delay rate cuts already expected for 2026.Today was a good example, where most US treasury yields saw considerable lifts, due to the renewed conflict in the Middle East.
In Canada, rate cuts were already unlikely, and a supply‑driven inflation bump makes them even less probable. While the Bank of Canada is not expected to hike in response to the conflict, policymakers have signaled that a cost shock without major growth damage would tilt them more hawkish, reinforcing the idea that monetary easing is further out of reach.
Sectoral Shift in the Markets
We’ve witnessed a change in performance leadership in the financial markets. The leadership has broadened beyond the previously dominant technology‑driven rally, with several cyclical and defensive sectors taking the lead, from a performance perspective.
The Canadian dollar has mostly stayed in a range, with the possibility of drifting higher later in 2026, if inflation keeps easing and global sentiment holds up. This is something that matters for Canadians owning U.S. and international investments and real estate.
Precious metals have been soaring and that’s been hard to miss as a Canadian investor. Gold has surged to repeated record highs, with silver posting even bigger percentage gains and dragging the broader precious metals space higher along with it. For silver in particular, its role in solar and other green technologies has added an extra layer of support on top of its traditional “crisis hedge” appeal.
*Sources: Ned Davis Research, 2/20/2026 (left); Bloomberg, 2/20/2026
This shift signals a broadening of market participation, with performance becoming less concentrated in mega‑cap tech and more evenly distributed across economically diverse sectors as macro conditions evolved. For Canadian investors, it all reinforces a familiar lesson: staying diversified across regions, sectors, and currencies is key. The next stretch of returns is likely to depend more on company earnings and careful selection than on another big wave of valuation expansion.
International’s Turn at the Top
“History doesn’t repeat, but it rhymes” – a line often linked to Mark Twain – feels especially true in investing. Every cycle convinces us that this time is different. For over a decade, U.S. markets seemed unstoppable. Big tech dominated, earnings growth looked structurally stronger than the rest of the world, and money kept flowing into American stocks. It wasn’t just outperformance; it felt permanent. Meanwhile, international markets lagged, tested investors’ patience, and quietly grew cheaper.
Then came 2024 and into 2025, and the rhyme showed up again. International markets began to outperform after a long stretch in the shadows. It didn’t happen because everyone suddenly agreed it would. In fact, it happened despite years of narratives arguing the opposite. Valuations mattered again. Cycles turned. Leadership rotated — as it always does. Most investors didn’t catch the exact moment it shifted, because almost no one ever does.
For additional evidence, from 2000 to 2009, the U.S. market experienced a “lost decade” of virtually zero returns, while international markets outperformed. Given how strong the U.S. market has been in the last 15+ years, it’s hard to imagine a period of such poor performance, but it happened – and it will happen again.
That’s the very point. Market rotations feel obvious only in hindsight. Trying to time them usually means arriving late or leaving early. Diversification can feel boring when one region is winning for years on end, but it’s precisely what protects you when leadership changes. You don’t diversify because you know when the turn will come. You diversify because you don’t. History may not repeat itself exactly, but in markets, it reliably rhymes – and mean reversion has a way of humbling even the most confident forecasts.
Sources:
Data provided by Refinitiv/London Stock Exchange