Weekly Wrap

Stocks gained again this week as investors cheered strong corporate profits and seemed hopeful that the Strait of Hormuz will open up again. Oil prices fell 7% as reports came out that Iranian and US negotiators are inching closer to a deal (I wouldn’t hold your breath for this). Canadian stocks are up nearly 2% this week, led by the non-resource sector as gold, like oil, also fell this week, shedding 1%. US stocks gained 1% in fairly broad-based strength while the drop in energy prices sent EU shares up 3%. The Emerging Markets gained 1% as they also benefit from lower oil prices and this, combined with strong trade data and attractive valuations (the Emerging Markets CAPE Ratio sits at 12-15…see below) continues to attract investor dollars. Interest rates followed oil prices down (the 5-year Canada yield fell 0.15%), despite inflation measures coming in worse than expected this week. The Loonie gave up 0.5% this week versus the US Dollar.

Market Insights

AI-Linked Imports Trade Expanding. World goods trade rose sharply over the first quarter of 2026, with the Netherlands Bureau for Economic Policy Analysis reporting a 3.5% quarterly increase in cross-border goods volumes. Much of the gain can be attributed to US demand for AI-related equipment, including servers, advanced computing hardware, semiconductors, and automation components. That demand supported Asian exporters, with shipments from advanced Asian economies excluding Japan rising 10.1%, China’s exports increasing 11.3%, Japan’s exports gaining 3%, and US imports climbing 6.3%. Trade growth remains concentrated in technology supply chains, while war-driven higher energy prices and transport disruption could pressure inflation, margins, and demand elsewhere. President Trump’s assault on trade is, thankfully, not stopping the flow of trade as US importers implicitly admit they need trading partners to build AI infrastructure. Meanwhile, Americans are rebelling against data centers as local opposition blocked or delayed at least 48 projects valued at around US$156 billion last year, according to Data Center Watch, while another 20 were cancelled in the first quarter. Councilors in several counties have faced threats, backlashes and even ouster for approving data centers, as public sentiment towards AI sours amid concerns over job losses and power-price spikes. A recent poll from the Economist and YouGov shows that the majority of Americans across all age groups thinks AI is moving too fast.

The Trouble with using Earnings Growth to Justify Valuations. I’ve always said that it’s all about earnings when you’re investing in stocks. I should have qualified that philosophy a little better when I said that. When investing in stocks the most commonly used metric to determine if you’re paying a fair price is to look at the share price and compare it to earnings levels (a P/E Ratio) to determine if you’re paying a price that is cheap, fair, or expensive. The problem is that it’s not quite that simple for one main reason…earnings fluctuate dramatically so what ‘E’ should you use for the metric? By and large P/E Ratios of 15-18 are considered ‘fair’…lower ratios are cheap and higher ratios are expensive. But in an economic slowdown earnings growth can not only slow but go negative. Some companies can even book a loss (which would make a P/E ratio negative). In an earnings growth year, however, it can make PE ratios look cheap. This can lead investors to aggressively buy based on ‘cheap’ valuations following a boom year. But the reality is the economy goes through cycles where year-over-year comparisons can lead to distorted short-term growth rates and ill-conceived extrapolations based on short-term growth. We have seen some very strong earnings growth the last couple of years, partly due to the fact we are comparing current growth against prior years of anemic growth…a trend that will not carry on forever.

What serves investors better when assessing PE ratios is to look at ‘normalized’ earnings as the denominator in this PE calculation. Normalized earnings use an aggregation of past years, which naturally includes all parts of a cycle, to get a more accurate idea of valuations over said full cycle. On this measure, the CAPE (cyclically adjusted PE) ratio for the S&P 500 is currently sitting at 40-42, compared to the long-term average of 17 and the modern long-term average of 20-21. Anyone suggesting the US market is reasonable value is not factoring in history…or reality. The US market was last at these levels at the end of the 90’s…a time that included high short-term growth rates and a miraculous new technology that changed the economy. The S&P 500 fell 24% over the next 10 years despite the fact that the internet did indeed change the world and also became a highly successful business model.  

Portfolio Update

No major changes again this week. Despite our below target equity weighting, and much more defensive approach across our fixed income holdings, we’ve been able to more than keep up with this bullish market. Fortunately, we have been able to accomplish this without chasing returns and paying high valuations. This week we reviewed the performance of our ‘Alts’ (Private Equity and Private Credit). Due to the lag in performance reporting, you will see the values were updated for their March performance this past week. March feels like a long time ago, but this was a month where stocks fell due to the inception of the Iran war. During a month where the S&P 500 fell 5% our alts stood up remarkably well. Oaktree dipped 0.43% (far better than most private credit) but the KKR Infrastructure fund gained 0.6% and the Blackstone Private Equity fund jumped 3.3%. As expected, the Alts have been offering strong ballast for the portfolio in off months and have done pretty darn well in the good months also. Given these holdings now account for an average of 10% to 12% of your portfolios their performance is significant and the fact that there is typically a 6-week lag to performance reporting for these holdings, they tend to be undervalued as they appear on your statements. We don’t yet have April and May performance, but I would expect further strong performance when those are updated.

Planning On

May is Disability Insurance Month

Even income protection gets its own calendar spot! This May, we're highlighting disability insurance—because your ability to earn is your greatest asset. In financial planning, we call this "human capital": the earning power you'll generate throughout your career. Protect it like you'd protect any valuable investment.

Why It Matters

Consider this: if you got sick or injured and couldn't work for months—or even years—how would you manage? Most Canadians depend on their pay cheque to cover essentials like shelter, food, and clothing, plus those extras that make life enjoyable. Disability insurance protects that income when injury or illness strikes.

The Coverage Landscape

You likely have multiple layers of potential protection:

• Group plans through your employer (short-term and long-term disability)
• Government programs like Employment Insurance (capped at 55% of earnings, max $729 a week for 26 weeks) and Canada Pension Plan disability benefits
• Individual disability insurance to fill gaps or provide standalone coverage

Here's the catch: even with employer coverage or government benefits, gaps often remain. The right combination of plans can protect up a significantly higher percentage of your income—including mental health coverage.

Who Should Pay Attention

You're a prime candidate if you're:

• Self-employed or a business owner (no employer safety net)
• High-income earner (government benefits cap out; lifestyle requires protection)
• Trades, construction, or agriculture worker (higher injury risk)
• Anyone with coverage gaps (check what you actually have vs. what you think you have) 

Beyond the Monthly Payment

Individual disability insurance often includes bonus services to help you return to work faster:

• Rehab and occupational therapy
• Work-site modifications
• Transferable skills analysis
• Job search assistance
• Assistive devices coverage
• Dependent care support

The Tax Advantage

If you pay premiums yourself with after-tax income, your benefits are tax-free. If your employer pays, benefits count as taxable income.

If you have an income and bills to pay, disability insurance deserves a spot in your financial plan or at least a conversation to see if it is right for you and your family.  

This information is not intended to provide legal, tax, or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified lawyer or accountant, as applicable, before acting on any of the information.

Charts of the Week

Spare Time Updates

How to transplant tomatoes to ensure strong, productive plants 

Check out the advice on setting your tomato plants up for a successful crop. 

What to know about visiting Rio's favelas

Once notorious no-go areas, Rio's sprawling favelas are now drawing more tourists than some of its most famous monuments. But is visiting safe and ethical?

Feel free to pass on this email to anyone you think would benefit from its information or see some value in it.

Thank you very much for reading through our commentary. Feedback is welcome!

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