Canada

The country’s economy eked out better-than-expected growth in January, with GDP rising 0.1% and early indications showing 0.2% growth in February. Tepid as it is, the increase demonstrated that the economy continues to be resilient in the face of U.S. tariffs and generally slow global growth. Despite contracting 0.6% in the fourth quarter, Canada managed overall GDP growth of 1.7% for 2025. However, the employment picture has darkened more recently, as employers show their uncertainty in the face of U.S. economic and trade policy, adding mostly part-time jobs and keeping a cap on wage growth. Inflation has been a bright spot, remaining close to the Bank of Canada’s (BoC) 2% target to start the year. While the BoC has already cut rates aggressively, there was some speculation that weakening inflation would allow them a further cut or two in 2026. Unfortunately, the war with Iran has taken all bets off the table, with concern rising daily that the sharp increase in energy prices – especially gas, diesel, and jet fuel – due to massive supply disruptions caused by Iran’s closing of the Strait of Hormuz will ripple through to other key areas, such as food prices. While markets have taken a step back in the face of the Iran war, the S&P/TSX Composite’s heavy weighting in oil and gas and other key commodity stocks has actually buoyed the country’s main equity index.          

United States

The U.S. economy continues to show signs of weakening moving into 2026, with GDP positive but rapidly moderating, gross hires declining to lowest level since the COVID-19 pandemic, and job openings falling sharply. The war in Iran has thrown even more uncertainty into the prospects for the world’s largest economy, already struggling to reconcile to President Trump’s tariff and economic policies. The U.S. Supreme Court struck down the International Emergency Economic Powers Act (IEEPA)-based tariffs, calling them illegal and leaving the government to refund over USD$160 billion to impacted importers. Consumers remained in a dour mood, with sentiment numbers at the lowest levels since the pandemic. The recent surge in energy and material prices has led to sizable increases in gas and diesel costs at the pump for both consumers and businesses, with food prices also beginning to move higher. These increases are now expected to lead the U.S. Federal Reserve to maintain interest rates where they are, with some economists even suggesting that the next move in rates will be higher – an unthinkable possibility only a few weeks ago and before the war with Iran began. The uncertainty of the war and its implications, along with its impact on interest rates, have conspired to knock back U.S. market indices into correction territory. While markets were already under pressure as investors began to re-assess the outlook for large-cap tech and software company stocks in light of spending on and implications of AI, they have begun to show signs of a turnaround as President Trump tried to force Iran to the bargaining table to end the war.  

Europe

Europe’s economy was beginning to see some light at the end of a very long tunnel before the war in Iran caused the region’s energy and material costs to skyrocket. The economy was entering a new and healthier phase, with Germany driving growth as it begins to see the fruits of its recent surge in new government spending. Also, for years European companies relied on selling goods to other countries, but are now deriving more of their revenue from spending by Europeans. Economic growth ended 2025 at roughly 1%, which was slightly weaker than hoped, but recent economic signals suggest that weakness was temporary rather than a sign of economic deterioration. However, the war is likely to ignite a surge in inflation, hurting growth and employment. The question is now whether that is a short- or longer-term impact. Overall, European stocks offer reasonable value supported by improving company profit prospects – but this opportunity requires earnings to materialize over the next 12 months, a diminishing prospect as the war with Iran drags on.

Emerging Markets

A weaker U.S. dollar has historically been associated with stronger performance in emerging markets. Many emerging-market economies carry significant dollar-denominated debt, so dollar depreciation eases financial conditions, reduces inflationary pressures and allows central banks greater scope to lower interest rates. Geopolitical tensions and trade frictions present meaningful risks, particularly if protectionist policies weigh on global growth. However, an important structural shift has been the expansion of trade within emerging markets. Emerging-market indexes are also more weighted toward commodities such as precious metals and copper, which tend to benefit from dollar weakness. The most compelling pillar of the emerging-market investment case is the shift in earnings growth. After more than a decade of subdued expansion, corporate earnings in emerging markets are expected to grow about 20% in 2026, making emerging-market stocks the fastest-growing major area for equities for a second consecutive year and marking a clear break from the low growth of the previous cycle. Emerging-market equities delivered strong returns in 2025, outperforming both developed markets and U.S. equities by a significant margin.