September 2026
U.S. protectionism has reintroduced frictions that decades of trade integration had reduced as tariffs and counter tariffs reduce trade, disrupt supply chains, and weigh on profit margins and investment in the most exposed sectors. Population aging is weighing on labour supply, business succession, and public finances. Highly indebted governments must find the resources to fund defence, infrastructure, the energy transition, and the fiscal costs of aging. Investors are demanding greater compensation to absorb it, with term premiums rising as markets confront rising global risks. In September we updated our twelve-month forward outlook from three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) to twelve months of Stagnation over the next twelve- month period.
China’s annual inflation climbed to 0.8% in August from July’s six-month low of 0.5%,1 while China’s surveyed urban unemployment rate rose to 5.3% in August from 5.2% in the previous month.2 China’s trade surplus widened to $119.09 billion in August. Exports jumped 25% year-on-year to $401.44 billion, following a nearly 24% increase in July, as the global AI infrastructure buildout continued to boost trade across Asia. Shipments to the U.S. surged 34.4%. Imports rose 28.2% to $282.36 billion.3 The Eurozone economy expanded 0.6% in Q2 2026.4 Eurozone annual inflation accelerated to 3.2% in August, with inflation accelerating in Germany, France, Spain, and Italy.5 The Eurozone’s seasonally adjusted unemployment rate held at 6.4% in July.6 The Euro Area recorded a trade surplus of €14.2 billion in July 2026.7
The annual inflation rate in the U.S. steadied at 3.4% in August 2026. Gasoline prices rose 27.4% year over year while fuel oil prices increased 52%.8 The U.S. unemployment rate remained unchanged at 4.1% in August 2026.9 The U.S. trade deficit widened to $88.6 billion in July 2026. Exports declined 2.1% to $310.7 billion. Imports rose 2.8% to $399.3 billion. The largest gaps were recorded with Mexico ($-27.5 billion), Vietnam ($-23.3 billion), and Taiwan ($-18 billion). The deficit with China was $15.2 billion and the balance with Switzerland shifted from a surplus of $2.9 billion to a deficit of $0.6 billion.10 The headline inflation rate in Canada was unchanged from the previous month at 3.0% in August,11 while the unemployment rate in Canada was unchanged from the previous month at 6.4%.12 Canada recorded a trade surplus of C$770 million in July of 2026. Imports rose 2.2% to C$75 billion. Exports declined 2.3% to C$76.1 billion. Exports to the U.S. fell by 6.6%, the sharpest decline since April 2025, while increasing for the Netherlands, China, and Germany.13
August was a turbulent month for U.S. equity markets, characterized by inflation fears and rising expectations of Fed rate hikes coupled with fiscal deficit concerns driving long-term Treasury yields to multi-year highs. The S&P 500 gained 2.7%. For the second consecutive month, mid and small caps underperformed large caps, with the S&P Mid Cap 400 and S&P SmallCap 600 returning 0.2% and -0.6%. The S&P/TSX Composite increased 3.1%. European indices closed August almost flat, with the S&P Europe 350 up 0.5% over the month. Asia Pacific equities regained positive momentum in August, with the S&P Pan Asia BMI (USD) rising 4.1%.
In September we maintained the August asset allocation. Heavy debt issuance from governments and businesses is helping to push long dated yields to multi-year highs. The U.S. 30-year Treasury yield climbed above 5.3% this summer, its highest level since 2007. Long-end yields have also moved sharply higher across developed markets including Germany, Japan, and the U.K. In addition, AI-related borrowing skews toward longer maturities. 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. Canada combines several characteristics that have become relatively scarce: public finances that remain stronger than in many other advanced economies, a bond market that continues to attract foreign capital, and abundant natural resources and energy that are increasingly sought after in a more fragmented world with substantial investment needs. 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.
Investors are deciding how much compensation they require to commit capital for ten, twenty, or thirty years in a world where inflation is less predictable and governments are issuing considerably more debt. The return of a higher term premium is the financial-market expression of this change in regime. Downside risks intensify while there is no resolution to the escalating trade war. The global economy is moving away from the U.S. as countries are strengthening their connections as a natural defence against America’s retreat. 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. September 9, 2026.
2 Trading Economics. China Unemployment. September 15, 2026.
3 Trading Economics. China Trade. September 8, 2026.
4 Trading Economics. EU GDP. September 7, 2026.
5 Trading Economics. EU Inflation. September 17, 2026.
6 Trading Economics. EU Unemployment. September 1, 2026.
7 Trading Economics. EU Trade. September 15, 2026.
8 Trading Economics. U.S. Inflation. September 11, 2026.
9 Trading Economics. U.S. Unemployment. September 4, 2026.
10 Trading Economics. U.S. Trade. September 3, 2026.
11 Trading Economics. Canada Inflation. September 14, 2026.
12 Trading Economics. Canada Unemployment. September 4, 2026.
13 Trading Economics. Canada Trade. September 3, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. August 31, 2026. Index performance is based on total returns and expressed in the local currency of the index.
