May 2026
The sharp oil supply shock created by the conflict and disruption to the Strait of Hormuz and rising uncertainty have trimmed roughly 30 basis points from global growth expectations compared to prior to the conflict. In addition, the closure has blocked roughly one-third of the global seaborne fertilizer trade with nitrogen and phosphate supply the most exposed, impacting food producers all over the world. Manufacturing and services PMI surveys are already pointing to softer activity in Europe and rising input costs across most major economies. A rise in recession fears with softer demand and tighter financial conditions will place central banks across the world in a position of responding to the higher inflation and related expectations. In May we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.
China’s annual inflation accelerated to 1.2% in April 2026,1 while China’s surveyed urban unemployment rate edged down to 5.2%.2 China’s trade surplus narrowed to $84.82 billion in April. Export growth accelerated to 14.1%, as companies rushed to stockpile components from manufacturing amid fears that the Iran war could push input costs even higher. Imports surged 25.3% year-on year.3 Eurozone economic growth was confirmed at 0.1% in the first quarter of 2026, reflecting pressure from tight energy supplies after the Middle East conflict disrupted flows of oil, its byproducts, and liquefied natural gas. France’s economy stalled, while the Netherlands and Italy grew by 0.1% and 0.2%, respectively. Germany saw a slight acceleration, with GDP expanding by 0.3%, and Spain led with a 0.6%.4 The Euro Area’s annual inflation rate was confirmed at 3.0% in April,5 while the Euro Area seasonally adjusted unemployment rate eased to 6.2% in March 2026.6
The U.S. economy expanded at an annualized rate of 2.0% in Q1 2026, up from 0.5% in the previous quarter. Net trade contributed negatively to GDP, as exports rose by 12.9% while imports jumped at a faster rate of 21.4%.7 The annual inflation rate in the U.S. accelerated to 3.8% in April,8 while the U.S. unemployment rate held at 4.3%.9 The goods deficit in the U.S. widened to $87.4 billion in March 2026 from $83.5 billion in February.10 Headline inflation in Canada rose to 2.8% in April,11 while the unemployment rate rose to 6.9%.12 Canada posted a trade surplus of C$1.8 billion in March. Exports climbed 8.5% to an over one-year high of C$72.8 billion, boosted by a 24% surge in shipments of metal and non-metallic mineral products and a 15.6% rise in energy products. Imports fell 1.6% to C$71 billion. The trade surplus with the United States widened to $7.1 billion in March.13
Markets appear to be treating the Middle East crisis and Hormuz shutdown as transitory. U.S. equities rallied in April, shaking off geopolitical concerns, oil price volatility, and inflation jitters, thanks to strong corporate earnings and robust economic growth. The S&P 500 gained 10.5%, while the S&P Mid Cap 400 and S&P SmallCap 600 were up 7.9% and 10.4%, respectively. Commodities advanced, led by Energy, driven by rising oil prices amid supply shocks in the Middle East. The S&P/TSX Composite increased 3.8%. The S&P Europe 350 started to climb back from a geopolitically turbulent March, gaining 5.4% in April. The S&P Pan Asia BMI (USD) surged 12.6%.
In May we maintained exposure to U.S. and Canadian Equities. We continue to believe that Canada is managing the U.S. tariff uncertainty relatively well, replacing some U.S. exports with contracts in Europe and abroad. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility. Gold’s rally paused in April as higher real rates caped the upside, but ongoing geopolitical risks and solid central‑bank demand should provide downside support. The crisis has reinforced many of the structural reasons investors own gold: inflation uncertainty, geopolitical risk, unreliable bond diversification, fiscal pressure, and gradual reserve diversification.
How the conflict and related disruptions evolve in the outlook period will determine the effects on commodity and financial markets and the economic implications. The global system is moving deeper into a regime defined by rising volatility across asset classes, energy scarcity, fiscal strain, and elevated inflation risk. For the U.S. economy, stagflation risk is higher because of limited policy flexibility from the Federal Reserve. 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 Inflation. May 11, 2026.
2 Trading Economics. China Unemployment. May 18, 2026.
3 Trading Economics. China Trade. May 9, 2026.
4 Trading Economics. EU GDP. May 13, 2026.
5 Trading Economics. EU Inflation. May 20, 2026.
6 Trading Economics. EU Unemployment. April 30, 2026.
7 Trading Economics. U.S. GDP. April 30, 2026.
8 Trading Economics. U.S. Inflation. May 12, 2026.
9 Trading Economics. U.S. Unemployment. May 8, 2026.
10 Trading Economics. U.S. Trade. April 29, 2026.
11 Trading Economics. Canada Inflation. May 19, 2026.
12 Trading Economics. Canada Unemployment. May 8, 2026.
13 Trading Economics. Canada Trade. May 5, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2026. Index performance is based on total returns and expressed in the local currency of the index.
