Weekly Wrap

As the tenuous Middle East ‘ceasefire’ plays out amidst a backdrop of conflicting reports, stock investors just can’t help but keep on buying. Oil prices fell another 5% this week as investors seem optimistic of a deal and this sent stocks up across the board. Asian and Emerging markets benefitted the most with developed Asia up nearly 6% and Emerging Markets up over 3%. The reason for this is that a disproportionate amount of oil the far east relies on comes from the Strait of Hormuz. US stocks were up 2% as tech shares rallied hard, while EU shares are up 1%. The ‘Petro’-Loonie gave back 0.5% of this year’s gain versus the US Dollar, likely due to the drop in oil prices. Meanwhile, corporate earnings continue to be strong when compared to 2025, but the economic data continues to grind lower with Canadian job data this morning coming in weak. This has helped push interest rates lower in the Canadian bond market as investors start to wonder if the Bank of Canada will be compelled to keep rates low.   

Market Insights

Five reasons why the oil shock isn’t breaking the global economy. Global equity markets are hitting new all-time highs, and the world economy is currently projected to grow at a 3% real rate in 2026 (i.e. after inflation) despite the ongoing geopolitical turmoil in the Middle East and its accompanying oil shock. This raises a compelling question: are investors becoming complacent about these risks, or are there substantive reasons to look past the US-Iran conflict? We explore five reasons below why the oil shock hasn't (yet) weighed more heavily on global growth: 

1. Damage accumulates over time rather than hitting all at once – the impact on GDP growth typically peaks around four quarters out, with effects on the overall GDP level peaking roughly six quarters later
2. Lower oil intensity – the global economy has become significantly less oil-intensive over time
3. Inflation expectations remain well-anchored – this limits the need for central banks to hike rates aggressively
4. AI spending boom – but…while this is currently a tailwind, there is significant vulnerability that this will slow
5. Expectations for lower oil prices – prices in the forward market indicate investors expect the oil shock to dissipate fairly quickly 

Pass the Pepto. It’s expected that AI Capex spending will eclipse $1 Trillion US in 2027 and a lot of that will be fueled by (over) eager lenders. This week Alphabet’s (AKA Google) record-setting bond deal sold out in no time…but I don’t intend to participate. The reason why is simple: these bonds pay no more than other equivalent rated bonds and thus have no upside…but they may have a downside we should all care about. I thought it would be useful to put this deal into context with respect to the broader Canadian corporate bond market. Not only was it the largest CAD corporate bond deal ever issued, but the bonds carry an AA+ rating; a relative rarity in the Canadian corporate bond market. The investment grade (i.e. high quality) Canadian bond universe (CAD) is approximately $2.9 trillion in size. Of that universe, approximately $630 billion is from corporate issuers. When segmented by credit rating, most of the Canadian corporate universe is A or BBB rated. Before Alphabet’s issuance, just $36 billion out of that $600 billion was AA rated, from a relatively small handful of issuers. This means that Alphabet’s $8.5 billion worth of bonds now represent approximately 19% of the AA rated Canadian corporate bond market. Besides GOOGL, only a handful of corporate issues carry a credit rating in the AA- to AA+ category and pretty soon there will be fewer in this category (banks are exiting this space for regulatory reasons) likely making GOOGL the dominant AA rated bond which many large institutions are required to hold to satisfy their risk parameters.

The demand for corporate bonds has been quite strong relative to net new issue supply over the past two years, and the GOOGL bond moved up on the secondary market, which suggests that demand for AI hyperscale issues is still strong in Canada, and the market would view another new issue favorably. When you add this all up, AI is now commanding a dominant influence in the economy (see above), the stock market and soon will command a dominant influence in the bond market…all before we understand who the winners will be and what the economic gains will be from AI. There is a growing level of potential systemic risk from our dependency on AI in the financial markets. This makes markets vulnerable to a shock in this sector which would impact not just the tech sector but the broader economy.

Portfolio Update

We made no major changes this week. We continue to look at opportunities to trim risk exposure across several fronts. With the economy listless but corporate earnings strong (buffeted by unsustainably high AI capex spending) and valuations very high, our focus is on downside protection in our equity holdings. In our fixed income holdings, contrary to most of the past 10 years, there is limited compensation for taking on extra risk. As such we are opting to improve the stability of our fixed income holdings in cases where we do not have to forsake much excess return. For the past few quarters, we have been steadily increasing our low risk fixed income and coming to the realization that this lower risk side of the portfolio is likely to remain for some time. As such, we are exploring ways to nibble away at slightly better opportunities within the low-risk side of fixed income with a potentially longer term time frame.    

Planning On

Capital Losses

Two weeks ago we touched on managing capital gains but what about capital losses? If you've realized capital losses in any year, it's important to understand how to use them effectively. The CRA allows you to offset capital gains with capital losses, and the rules provide significant flexibility.

Here's the sequence: losses must first offset any capital gains in the current tax year. After offsetting current-year gains, you can carry unused losses back up to three years to recover taxes paid on gains in those previous years. Any remaining losses can be carried forward indefinitely into future years with no expiration date.

This strategy applies to all capital property losses, not just stock market losses. Investment properties, real estate, and other capital assets all qualify. For those contemplating the sale of an investment property this year, with real estate prices down, there could be an opportunity to use a potential loss to your gain. If you have a self-directed non-registered account out there, with some positions sitting in a loss position with little hope of a gain, then consider unwinding the position and turn that net negative into a net positive, offsetting non-registered gains your accounts at Dominion Securities may have in 2026 or to offset the ones experienced in 2025 possibly.  

To manage the capital loss strategy effectively over the years, you need accurate tracking. CRA My Account displays your unused losses and updates them after each assessment. If you use tax preparation software consistently, it should track previous years' carry-forward amounts and calculate current year losses—giving you a clear picture of what you have available.

The bottom line: Capital losses have real value and shouldn't be overlooked. If you've realized losses this year or would like to, we should review your situation to ensure you're using them strategically. Whether recovering taxes from recent years or banking losses for future gains, proper planning matters.

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

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

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