Strip away the noise, and this quarter was about one thing: the cost of money.

Short-term market movements can be noisy, but they often reveal what matters most underneath; and in this case, they point clearly to the role of interest rates.

The quarter followed a familiar pattern - a strong start, particularly in Canadian equities, followed by a more volatile finish. The S&P/TSX Composite Index ended up roughly 4%, while the S&P 500 declined approximately 4%, with most of the weakness emerging later in the period.

As the quarter progressed, that underlying driver became clearer. Market behavior increasingly reflected changes in inflation expectations and, in turn, interest rates. The U.S. 10-year Treasury yield moved from the high-3% range to the low-to-mid 4% range, influencing valuations across asset classes.

That shift showed up broadly. Fixed income declined modestly as yields moved higher, with longer-duration bonds under the most pressure. In equities, leadership became more macro-driven - particularly tied to inflation - with energy and commodity-linked areas holding up better at points, while more rate-sensitive segments pulled back. Many assets, even those that appear diversified, remain exposed to the same underlying force.

At the same time, early signs of strain are emerging in parts of private markets - particularly certain private credit and interval fund structures. Some have introduced limits on redemptions, not due to asset impairment, but because liquidity and valuation do not always align in tighter conditions. The risk of contagion remains low given the size of the market - but rising uncertainty is already affecting valuations across public markets. Private credit, now roughly $1.5-2 trillion globally, remains significantly smaller than the $10+ trillion U.S. corporate bond market, but it serves as a reminder that structure matters.

This naturally raises a broader question: what actually holds up when rates move higher?

There are few true hedges. Short-duration fixed income and cash - now yielding roughly 3-4% in Canada - have held up better, offering both stability and optionality. Many traditional diversifiers, by contrast, remain more rate-sensitive than they appear.

Which brings us to what may be the most important variable: oil.

Oil prices moved sharply higher during the quarter and into April, with front-month WTI crude rising from the low-$70s to over $110 per barrel, and briefly into the mid-$110s. Moves of this magnitude matter less for where oil settles, and more for what they do to expectations. Energy feeds into inflation both directly and indirectly - through transportation, logistics, and services - and ultimately influences interest rates.

From here, the path becomes more conditional. If inflation proves more persistent, rates may remain higher for longer. If energy stabilizes, that pressure could ease. Either way, the direction of inflation may depend as much on energy as it does on demand.

Stepping back, these are not short-term signals that call for constant change. They are longer-term forces that reinforce a consistent approach: focusing on resilience, maintaining liquidity, and avoiding overexposure to any single outcome.

In uncertain environments, the objective isn’t to predict perfectly - it’s to be positioned so that you don’t have to.

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