Q3 2026 market update: Canadian investment-grade bonds returned roughly negative 3% while stock markets in many parts of the world ended September near record highs. Institutional portfolio manager Kevin Minas and investment counsellor Stu Morrow review the quarter, from oil above $100 a barrel and a more hawkish Fed to bond yields at multi-year highs. They discuss why hyperscalers borrowing over US$200 billion this year is crowding out other issuers, what a narrow AI-led rally means when more than half of the S&P 500 sits 20% below its peak, and whether the 60-40 portfolio still needs 40% in traditional bonds. The conversation closes on the quarter's asset allocation changes in the balanced strategy.
 
Key Takeaways
  • Bonds had a difficult quarter. The FTSE Canada Universe printed a negative 3% return as yields climbed to multi-year highs on inflation, fiscal deficits, and growing debt burdens, with flashbacks of 2022 for bond investors.
  • Oil mostly above $100 a barrel kept inflation in the conversation. A more hawkish message from the Fed at Jackson Hole shifted the debate from when rates get cut to whether more hikes are needed, and the ECB raised rates while the Bank of Canada held.
  • Hyperscaler borrowing is crowding out other issuers. Microsoft, Amazon, Meta, and peers have issued over US$200 billion of debt year to date in 2026, and because AI is treated as an existential race, those borrowers are less sensitive to their cost of capital.
  • The equity rally is real but narrow. AI infrastructure and the hyperscalers account for roughly two-thirds of expected 2026 earnings growth, yet more than half of S&P 500 stocks ended September about 20% below their all-time highs.
  • For a 60-40 investor, 40% in traditional bonds may no longer be the right number. Pairing core fixed income with an unconstrained global credit strategy means taking duration risk only where the team is being paid to, and the team added triple-B corporate issues at 7% to 8% yields.
 

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Founded in 1974, Mawer Investment Management Ltd. (pronounced "more") is a privately owned independent investment firm managing assets for institutional and individual investors. Mawer employs over 250 people in Canada, U.S., and Singapore. 

 

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