Highlights

• Our Observations
• Current Economic Outlook
• Our Investment Strategy
• RRSP Contribution Reminder

Our Observations

Financial markets continue to balance competing forces, namely: corporate earnings, economic data, and investor sentiment. Recent weeks have brought renewed volatility in technology stocks, mixed signals from the Canadian labour market. Yet economic forecasts for 2026 are constructive.

Canada lost 25,000 jobs in January, ending five consecutive months of gains. Weakness was concentrated in Ontario manufacturing, a sector particularly exposed to U.S. trade policy.

The data appears contradictory at first glance: while employment declined, the unemployment rate fell to 6.5% from 6.8%. This occurred largely because fewer people actively sought work. Encouragingly, worker discouragement remains limited, suggesting demographic factors, rather than worsening economic conditions, are driving this dynamic.

Canada's population growth has slowed sharply due to reduced immigration targets and ongoing retirements. With fewer workers entering the labour force, fewer job gains are needed to maintain stable unemployment. As a result, headline labour market data may appear soft while remaining fundamentally sound.

Recent developments in U.S. trade policy have created new market dynamics. The Supreme Court of the United States has taken some of the swing out of Donald Trump's biggest negotiation hammer, overturning the White House's emergency "reciprocal" tariffs on unjustified usage of the 1977 International Emergency Economic Powers Act (IEEPA). "When Congress grants the power to impose tariffs, it does so clearly and with careful constraints. It did neither here," Chief Justice John Roberts wrote in the court's majority opinion. This ruling introduces additional uncertainty around trade policy implementation and its economic impacts.

Currency movements are also reshaping the economic landscape. The U.S. dollar has weakened notably since early 2025, falling nearly 10% on a trade-weighted basis from its January 2025 peak and hovering near a four-year low, with several strategists, including those from RBC Capital Markets, maintaining a bearish short-term outlook. This currency weakness carries mixed implications: while it supports U.S. exporters and can help narrow the trade deficit, it also raises import costs and potentially adds to inflation risks. When combined with existing tariffs, this creates a compounding effect on import prices.

Current Economic Outlook

The macroeconomic picture is becoming more constructive as we enter 2026.

Key factors include:

• Better U.S. economic growth
• Projected S&P 500 earnings growth of 10% or better
• Expanding fiscal spending in Europe
• Stabilizing economic momentum in China
• Slowing Canadian labour force growth due to demographics

Much of the inflationary impact from tariffs may still lie ahead and could be amplified by a persistently weaker greenback. Based on historical relationships, the current pace of dollar depreciation is consistent with U.S. economic growth of roughly 2%, broadly in line with expectations for 2026. This currency weakness, while supportive of growth through improved export competitiveness, may contribute to the Federal Reserve maintaining a cautious stance through the first half of 2026.

While constructive, U.S. policy uncertainty, particularly surrounding elections, could drive periodic volatility. Elevated equity valuations also suggest market pullbacks should be expected.

Our Strategy

Strengthening global growth forecasts and rising earnings estimates provide a supportive foundation for 2026. By maintaining a long-term perspective, focusing on quality and diversification, and remaining disciplined during volatility, portfolios are well positioned to navigate the opportunities and challenges ahead.

Our Tried-and-True Approach

 

"I trust my years of experience and the work of my team."

- Mikaël Kingsbury, winner of the gold medal at Milano Cortina.
Born in Sainte-Agathe-des-Monts, Québec.
The best mogul skier of all time!

 

RRSP Contribution Reminder

Now is the time to contribute to your RRSP, TFSA, FHSA, and RESP accounts. Setting up automatic contributions is the best savings discipline, promoting long-term growth at your desired amount and frequency.

• RRSP: Last day to contribute for the 2025 fiscal year is Monday, March 2nd, 2026.
• TFSA: 2026 contribution room is $7,000 (total since 2009: $109,000).
• FHSA: $8,000 per year, up to a $40,000 lifetime limit.

As always, we're available to answer your questions.

Benoit Legros, B.A.A., CIM, FCSI
Senior Portfolio Manager and Wealth Advisor