DIARY OF A PORTFOLIO MANAGER 

SEPTEMBER 25, 2026

“Sometimes you have to take the bad with the good to find the beauty in life”

Clint Eastwood, The Good, The Bad and the Ugly (1966)

The movie above is also known as Il buono, il brutto, il cattivo in Italian.  It is a spaghetti Western film, after all. Something for you to process as we finish off another interesting week.

Canada continues to face a familiar economic challenge: turning its considerable advantages into stronger investment and productivity growth. I keep thinking this can’t be that hard.  Yet, it seems to be.

Canada Investment Summit

Canada has many qualities that should make it attractive to investors, including abundant natural resources, a highly educated workforce, and credible institutions. The first Canada Investment Summit sought to showcase these advantages and potential investment opportunities to global investors. Over the next five years, the objective is to attract more than $1 trillion of new capital to Canada.  

So far, the federal government has reported nearly $500 billion in investment and financing commitments, including almost $100 billion from institutional investors and roughly $325 billion made available by Canadian banks. Rather than generating an immediate spending impulse, some commitments will be deployed over several years, while bank financing depends on sourcing suitable projects and borrowers. The economic payoff will ultimately rest on how much of the announced capital translates into tangible projects and whether it helps attract additional foreign investment inflows. 

The summit also unveiled measures aimed at improving the economics of investing in Canada. Most notably, the new Productivity Mega Deduction gives businesses a larger tax benefit upfront when they invest in machinery, technology, infrastructure and other assets. Accelerating those deductions improves cash flow and raises an investment’s expected after-tax return, potentially making more projects economically viable. 

The government estimates the changes will cut Canada’s marginal effective tax rate on new business investment from 13% to 6.4%, the lowest amongst major economies. Separately, the Building Canada Strong Act (Bill C-39), proposed on Monday, would make project approvals faster and more predictable by mandating a one-year review timeline for completed applications. Together, these measures are intended to make major projects more financially attractive while shortening the path from proposal to construction.

Shoring Up Alliances 

While the summit was hosted in Canada, policymakers also continued their roadshow to broaden strategic and economic ties across the Atlantic. Recent discussions with European leaders have included the possibility of Canada becoming the European Union’s first “associate member,” alongside deeper cooperation in areas such as critical minerals, defence, energy and advanced technology. These efforts have taken on more importance as Canada-U.S. trade tensions have re-escalated. We acknowledge that geographic proximity and deeply integrated supply chains mean the U.S. is likely to remain central to Canada’s economy. Expanding overseas markets should improve resilience and create new opportunities, even if strong economic incentives remain for both countries to reach a mutually beneficial trade agreement. 

The Canadian Economy: A Different Starting Point 

In a speech this week, Bank of Canada (BoC) Governor Tiff Macklem highlighted the competing forces shaping the outlook. If the latest U.S. tariffs remain in place, he estimated that economic growth could slow to an annualized pace below 1% in the fourth quarter, roughly half the central bank’s previous expectation. 

At the same time, headline inflation remains around 3%, largely reflecting higher energy prices, while measures of underlying inflation are closer to 2%. This suggests broader price pressures remain relatively contained beneath the headline number. So far, the central bank has seen limited evidence that higher energy costs are spreading more broadly, although that risk increases the longer oil prices remain elevated. This differs from the U.S., where economic momentum remains relatively firm and inflation has been running above target for several years, leading the Federal Reserve to raise interest rates last week. 

Canada’s softer growth backdrop does not necessarily rule out a rate hike. Markets still see a meaningful chance of an increase at the BoC’s October meeting, as policymakers weigh muted growth against the risk that elevated energy costs become more persistent. The policy rate also sits at the bottom of the BoC’s estimated “neutral range,” the level expected to neither stimulate nor restrain the economy. A modest increase could therefore move policy toward a more neutral setting that reduces some current monetary support while guarding against broader inflation pressures.

Takeaway

After decades of incrementalism and heavy reliance on the U.S., recent trade tensions have served as a much-needed catalyst for Canada to pursue a more ambitious economic agenda. Many of the federal government’s proposals will take time to implement and deliver results.  With strong follow-through, your team at DS believes that the initiatives will help address longstanding economic challenges.  How?  By unlocking the considerable strengths and potential of our economy. Over the medium to long term, we believe stronger investment and productivity should help lift Canada's growth trajectory. For investors, that matters because it potentially points to a more constructive environment for the earnings prospects of Canadian companies.  Not completely sure that this is a foregone conclusion based on Government success in these areas in the past but doesn’t hurt to be optimistic.  Strong follow through as I just mentioned is the key.

Should you have any questions, please feel free to reach out.

J. Todd Kennedy, CIM, FCSI | Senior Portfolio Manager | Kennedy Wealth Management | RBC Dominion Securities Inc. | Phone: 613-566-4582 | Cell: 343-961-3820 | Toll Free: 800-461-1958 | World Exchange Plaza | 45 O’Connor St. Suite 900, Ottawa, ON K1P 1A4 | http://www.toddkennedy.ca

Disclosures

This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities.