The global economy continues to expand on relatively firm footing, supported by steady business activity across both manufacturing and services. In the U.S., economic growth appears poised to accelerate into the third quarter, while broader corporate earnings have largely held up. While this economic backdrop provides a constructive baseline, market valuations and investor sentiment are operating against a backdrop of increasing crosscurrents and narrowing margins for error. 

Energy markets have emerged as an immediate focal point following renewed Middle East tensions. Key crude benchmarks have moved sharply higher, with key benchmarks trading near or above 100 dollars a barrel as attacks on regional infrastructure and shipping intensify.

A sustained energy shock would feed directly into near term inflation expectations, complicating the path for central banks and potentially forcing interest rates to remain higher for longer. Financial markets are already reflecting this friction, with government bond yields moving higher across major markets and maturities.Higher bond yields are partly a reflection of an economy that has proven far more resilient to macro shocks than many anticipated. However, higher borrowing costs also represent a persistent headwind that can weigh on equity multiples, constrain growth momentum, and place added pressure on heavily indebted sectors. 

Trade frictions present an additional layer of complexity, particularly in Canada, where retaliatory dollar for dollar tariffs recently took effect in response to U.S. trade policy. Canada’s counter tariffs have been strategically targeted at politically sensitive U.S. states to apply pressure ahead of the upcoming congressional midterms. While the broader macroeconomic impact may remain contained due to targeted government support and deep cross border integration, persistent tariff disputes nevertheless pose a drag on business investment, hiring, and consumer confidence. 

These lingering crosscurrents explain why we have maintained a deliberate, conservative allocation across portfolios since late last year. Our posture is not a prediction of an impending downturn, nor does it ignore the strength in core corporate earnings. Rather, it reflects an intentional effort to manage risk when equity valuations leave little room for policy missteps or sudden shifts in sentiment. 

By focusing on high-quality businesses, securing dependable, fixed income yield at higher prevailing rates, and maintaining liquid reserves, we ensure portfolios remain resilient. This cautious stance allows us to navigate near term headline volatility with patience, while preserving the flexibility to deploy capital when market pullbacks offer more compelling long term entry points.

We continue to watch things closely and will update you as events unfold.

Wishing everybody a fantastic weekend!