Episode overview
In this episode of Investments Unplugged, host Kevin Headland is joined by U.S.-based Co–Chief Investment Strategists Emily Roland, CIMA, and Matt Miskin, CFA, for a “back-to-school” themed market outlook, along with their views on portfolio positioning, for the remainder of 2026 and into 2027.
Using a “report-card” framing, they assess:
· The overall economic backdrop, with a focus on labor market signals and “Goldilocks-like” conditions
· The role of AI-led capex and its effects on manufacturing activity and market leadership
· The state of corporate earnings, equity market valuations, and market breadth
· Why fixed income may be re-emerging as a more compelling portfolio building block
Key topics & insights
1. Economics 101: a “Goldilocks-ish” U.S. economy, but with softer edges
Ø The U.S. economy is given a report-card grade of roughly a “B / B+”; it’s not overheating, nor is it on the verge of collapsing.
Ø The labor market is characterized as “no-hire, no-fire,” with limited layoffs and low jobless claims but some signs of cooling.
Ø There has been some softening in consumption and sentiment (e.g., weaker retail sales, worth monitoring closely.
2. AI as a new cycle driver: capex, computing power, manufacturing renaissance
Ø AI is described as a powerful economic engine in today’s environment, driving a surge in business investment and data-center buildouts.
Ø AI demand is a catalyst for manufacturing and industrial activity, with knock-on effects beyond just mega-cap technology space.
Ø However, what consumers/businesses say they’re going to do might differ from what they actually do, so tracking hard activity data will be key.
3. Earnings power and market breadth: Stocks have tended to follow profits over time
Ø A broad-based boom in corporate profits has been supporting the equity market in recent quarters, extending beyond just the big mega-cap tech stocks,
Ø For example, “old economy” segments of the market (notably, the energy and financials sectors) have been delivering strong earnings growth as well.
Ø Similarly, recent equity market performance has also broadened, with several areas outside the U.S. large-cap growth space doing comparatively better.
4. Market valuations and the risk of “great expectations” on the part of investors
Ø While equity valuations had been stretched earlier this year, price/earnings (P/E) multiple expansion has been moderated by stronger corporate earnings.
Ø The key risk: If earnings growth and AI-related capex were to slow, areas of the market currently priced for favorable outcomes could respond negatively.
Ø The portfolio implication for investors: Stay diversified across and within asset classes, try to avoid “overconcentration” in a single market sector or theme.
5. The direction of interest rates and the monetary policy “wildcard”
Ø There’s tension between AI hyperscalers’ large funding needs (debt/equity issuance) and the risk that central banks could drain market liquidity if inflation reignites.
Ø The U.S. Federal Reserve (Fed) policy backdrop is uncertain, with bond markets potentially pricing in rate outcomes that may not match incoming economic data.
Ø Rising long-end yields are important in the context of bond market supply/demand dynamics, with investor attention shifting toward private/AI-linked issues.
6. Fixed income: Yields are more attractive, but patience and positioning matter
Ø Many bond yields have drifted higher amid inflationary concerns, but investors often wait too long to rebuild their fixed-income portfolio exposures.
Ø In credit markets, even with spreads tight, the absolute yield levels have become more attractive, but there could be bouts of rate-driven volatility.
Actionable takeaways for Canadian investors
· Be alert to potential investment opportunities. Even if economic growth is choppy, corporate earnings and market leadership can still support risk assets.
· Diversify by business exposure, not just geography. In today’s markets, global diversification can still leave your portfolio overconcentrated in the AI supply chain.
· Participate in the AI theme, but manage concentration risk. Maintain AI exposure while being realistic about equity valuations, capex sensitivity, and other factors.
· With yields having risen, revisit the portfolio role of bonds. In particular, using high-quality fixed-income assets more intentionally may be beneficial.
· Use credit selectively for income. Even with spreads tight, consider allocations to higher-yielding credit market sectors, but stay mindful of the risks.
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Links & Resources
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