As we close the books on 2025, the headline is clear: it has been another remarkable year for equity investors. With the S&P 500 finishing up approximately 17.1%¹, we are reminded of the market’s enduring resilience. When we zoom out, the trend is even more impressive. In six of the past seven years, the market has delivered returns near or above 20%. Contrast this with the 100-year historical average of roughly 9.5%, and it is evident that we are navigating an exceptional period of wealth creation. While valuations today are not "crazy," the market is certainly not cheap, and history reminds us that bull markets usually die of policy errors rather than old age.
Throughout 2025, investors were forced to reconcile a sharp dichotomy between political anxiety and economic reality. Viewed through a strictly political lens, specifically regarding President Trump’s geopolitical stance, there was ample reason for concern. Yet, the administration’s domestic economic policies, combined with deregulation and fiscal ease, proved highly stimulative. Even the "Tariff Tantrum" of April 2025 ultimately had limited economic impact, so far. The US economy remains on solid footing with resilient GDP, employment, and strong corporate profitability growth.
However, monetary policy faces a critical test in the coming months. We view the Federal Reserve’s independence as a key pillar of market stability, and we are closely watching the expiration of Jerome Powell’s term as Chair in May 2026. The appointment of a new Governor or Chair will be a pivotal moment; markets will be sensitive to any politicization of the central bank. If the transition threatens the Fed’s perceived independence or credibility in fighting inflation, it could introduce a layer of volatility we have not seen in some time.
Despite inflation improvement in the last couple of years, the US has an affordability issue affecting the majority of Americans and we believe that this will be a very important topic affecting midterm elections.
Closer to home, the Canadian economy has also defied the pessimistic forecasts from the spring. We have proven resilient, and while our productivity issues of the past 15 years remain a challenge, the government’s proposed capital spending initiatives offer some hope for structural improvement. In our local markets, the TSX found strong support in specific pockets, most notably Gold, which saw a staggering 54%¹ rise. This move was partly driven by the global narrative of US dollar debasement and central banks rebalancing away from the US dollar towards gold. However, our internal analysis suggests a nuance many are missing: the increase in central bank reserves has been driven more by the price appreciation of gold rather than a massive increase in tonnage purchased. Because the return on invested capital in public gold equities has historically been weak, we have chosen to stay on the sidelines of the miners despite the commodity's rally.
Our primary caution for the US market stems from historic concentration. The S&P 500 is increasingly top-heavy, with the "Magnificent 10"² now comprising 37.5%¹ of the index by weight and responsible for a massive 52%¹ of the index's total performance. This concentration is heavily tied to the Artificial Intelligence theme. While the potential of AI is undeniable, there is a growing divergence between the massive capital expenditures committed to AI and the actual economic benefits realized so far and into the future. If AI proves to be a bubble, or if execution risks materialize, the market could suffer a correction due to this heavy weighting.
Looking toward 2026, we view this concentration not just as a risk, but as an opportunity for rotation. We anticipate that 2026 will see much broader participation from the "other 490" companies in the index. We expect the baton to be passed from a narrow group of tech giants to a wider array of sectors that benefit from a growing global economy.
While Europe enjoyed a strong 2025, we must remember that this follows 15 years of chronic underperformance relative to the US. We remain skeptical of its long-term structural momentum. Consequently, we are more comfortable investing closer to home, focusing on North American companies we can follow closely and understand deeply, rather than chasing returns in European or emerging markets where visibility is lower. We continue to favor a diversified portfolio of structural secular winners, specifically financials, engineering firms, and consumer staples that help families offset inflation stress. We also hold selective, high-quality technology companies, but only those with the large balance sheets necessary to weather shifts in the capital cycle.
As we move into the new year, we remain positive on the US and global economy. We are keeping a close watch on key events, such as the upcoming mid-term elections where Republicans face a challenge and the upcoming Supreme Court decision on tariffs. While we expect USMCA negotiations beginning in May 2026 to make headlines and noise, we believe the trade outcomes will likely range from neutral to positive for Canada. Please remember that these are simply events we monitor to manage risk, not signals for market timing, which we believe is impossible.
Thank you for your continued trust as we navigate these dynamic markets together.

Warm regards,

Alexandre, Philippe & Steve