October 2026
Following the massive wave of global tariffs initiated by the U.S administration in 2025 and retaliatory cycles extending into late 2026, we are no longer dealing with a temporary trade shift. Instead, the global economy has adapted to a protectionist trade regime that has reset international supply chains. Central banks, including the Bank of Canada and the Federal Reserve, have noted that this trade conflict causes structural rather than cyclical damage. Unlike a typical recession where idle factories can easily restart when consumer demand returns, the current tariff regime has forced permanent corporate re-allocations. Companies are abandoning long-term investments, absorbing lower profit margins, and shifting capital away from cross-border commerce. Some companies are moving away from rather than into the U.S, due to the need to avoid trade policy volatility. In October we held our twelve-month forward outlook at twelve months of Stagnation over the next twelve- month period.
China’s economy grew 4.5% year over year in Q3 2026. Growth was supported by recent policy easing and resilient exports, particularly of AI-related components, high-tech manufactured goods, and electric vehicles.1 China’s annual inflation rate edged up to 0.9% in September,2 while China’s surveyed urban unemployment rate edged down to 5.2%.3 China’s trade surplus widened to $133.53 billion in September. Exports jumped 36.3% year over year. Imports jumped 31%.4 The Eurozone economy expanded by 0.4% in Q3 2026.5 The annual inflation rate in the Eurozone accelerated to 3.8% in September. Prices rose faster for energy (18.9%).6 The Euro Area posted a trade deficit. Imports surged by 16.7% from the previous year, as the war in the Middle East and the resulting blockade of tankers leaving the Persian Gulf lifted petroleum and petroleum product purchases by 20.7%. Exports rose by 9.9%. Exports to the United States were up 18.5% from the previous year.7
The U.S. economy expanded an annualized 3.4% in Q3 2026, compared to a 2.2% rise in Q2. The government sector jumped 5.3%, led by sales of crude oil from the Strategic Reserve.8 The U.S. annual inflation rate accelerated to 3.7% in September. Gasoline rose 34.2% year over year, and fuel oil prices increased 74.2%.9 The U.S. unemployment rate rose to 4.2% in September.10 The U.S. trade deficit widened to $105.6 billion in August. The widening was driven by a $17.2 billion surge in imports to an all-time high of $420.8 billion, led by crude oil and non-monetary gold.11 The headline inflation rate in Canada rose to 3.1% in September. Prices accelerated 27.8% for gasoline, tracking the recent surge in crude oil prices.12 The unemployment rate in Canada inched up to 6.5% in September.13 Canada recorded a trade surplus of C$4.2 billion in August of 2026, widening from the upwardly revised C$0.79 billion in the earlier month to mark the largest trade surplus since May of 2022. Exports jumped by 2.5% from the previous month as the increase in energy prices due to the war in the Middle East drove energy product sales to surge 4.7%. Exports to the U.S. surged 8.1% as U.S. consumers likely front-loaded purchases of Canadian goods before a series of tariffs took effect later in the month. Meanwhile, imports fell by 2.0%.14
U.S. equities continued upwards in Q3, propelled by strong corporate fundamentals and economic growth. Shrugging off Treasury yields soaring to multiyear highs, ongoing geopolitical concerns, and worries over the sustainability of the AI trade, the S&P 500 closed the quarter up 2.3%. Mid and small caps underperformed, with the S&P Mid Cap 400 and S&P Small Cap 600 down 6.4% and 7.9%, respectively. The S&P/TSX Composite increased 1.6% in Q3. The S&P Europe 350 fell 2.4% in September and 0.8% over Q3. The United Kingdom was the largest positive contributor to the index, rising 2% in GBP terms over the quarter. Amid higher interest rates and oil prices, Asia Pacific equities kept pace with global peers, with the S&P Pan Asia BMI (USD) rising 1.8% in Q3.
In October we maintained the September asset allocation. Heavy debt issuance from governments and businesses is helping to push long dated yields to multi-year highs. Our fixed income duration remains toward the short end. We continue to have a higher allocation to Canadian equities over U.S. equities as Canada is preferred as a more stable market. Gold is held across all models as a geopolitical risk hedge. Gold’s historical performance during times of crisis, portfolio diversification, and inflation hedging are also key factors for central banks to hold and add to their gold reserves.
The war in the Middle East has prompted the U.S. and Iran to tighten their blockade of oil and fuel tankers crossing the Persian Gulf, driving up global inflation. Investors are deciding how much compensation they require to commit capital longer term, in a world where inflation is less predictable and governments are issuing considerably more debt. Downside risks intensify while there is no resolution to the escalating trade war. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 Trading Economics. China GDP. October 19, 2026.
2 Trading Economics. China Inflation. October 14, 2026.
3 Trading Economics. China Unemployment. October 19, 2026.
4 Trading Economics. China Trade. October 14, 2026.
5 Trading Economics. EU GDP. October 30, 2026.
6 Trading Economics. EU Inflation. October 16, 2026.
7 Trading Economics. EU Trade. October 16, 2026.
8 Trading Economics. U.S. GDP. October 29, 2026.
9 Trading Economics. U.S. Inflation. October 14, 2026.
10 Trading Economics. U.S. Unemployment. October 2, 2026.
11 Trading Economics. U.S. Trade. October 6, 2026.
12 Trading Economics. Canada Inflation. October 19, 2026.
13 Trading Economics. Canada Unemployment. October 9, 2026.
14 Trading Economics. Canada Trade. October 6, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. September 30, 2026. Index performance is based on total returns and expressed in the local currency of the index.
