A senseless war

The balanced portfolio has fallen by about 3.5% since the start of the war in Iran, wiping out all gains since the beginning of the year. However, the return over the past year remains at nearly 13%. Nothing too alarming.

It should come as no surprise that the portfolio has not been too badly affected by the war so far. Historically, wars have not had a lasting impact on stock markets, which are far more interested in corporate profits—which continue to grow—than in the vagaries of geopolitics.

Sadly, the true impact of war is measured in human lives…

The balanced portfolio would have performed better had it not been for the poor performance of bonds, which have fallen 2% since the start of the war. This is because the more than 50% rise in oil prices risks reigniting inflation and pushing up interest rates, which negatively affects the value of bonds.

Another unexpected casualty of the war appears to be the price of gold, which has fallen by about 11% since the conflict began on February 28, 2026. The problem with gold—unlike other assets—is that it generates no income. Its sharp rise since 2023 was essentially a speculative move, and the war in Iran appears to have triggered a rush to sell. Not to mention that some central banks have also taken advantage of the high price to sell part of their gold reserves.

For everyone's sake, let's hope this senseless war comes to an end soon.

Market Review

Canadian Stocks: Outperforming Wall Street

The Canadian stock market posted a return of 3.9% in the first quarter of 2026.

The energy sector posted a remarkable performance during this period, driven by rising oil and natural gas prices. Geopolitical tensions in the Middle East, particularly U.S.-Israeli military actions against Iran, disrupted oil supplies, causing prices to skyrocket. In March, the price of West Texas Intermediate (WTI) crude oil exceeded $100 per barrel, an increase of approximately 56% from pre-conflict levels. Energy stocks helped support the TSX Index, offsetting weakness in other sectors.

The energy sector accounts for 17.9% of the S&P/TSX Composite Index, compared with just 3.8% of the S&P 500 Index. This overweight position has worked in Canada’s favor, enabling the Canadian market to outperform the U.S. market amid rising energy prices.

Gold experienced significant volatility in March 2026, falling from its early-month high of $5,311.60 to $4,392.30, a decline of 17.3%. The metal then rebounded to reach $4,678.6 by month-end, representing an overall decline of 10.9% for the month of March. Although gold is generally considered a safe-haven asset, the massive sell-off observed at the start of the month reflected short-term economic pressures. Investors sold to raise cash or meet margin requirements, and expectations of rising interest rates weighed on demand.

At the end of March, optimism regarding a possible easing of tensions with Iran helped stabilize the markets, allowing gold to rebound and limit its losses. Canadian investors benefited from the leverage effect of gold stocks, as the S&P/TSX Global Gold Total Return Index (CAD)—which tracks the performance of gold mining companies’ stocks—outperformed the metal itself during the quarter. Gold mining stock prices tend to amplify fluctuations in the price of gold due to operational leverage: when the price of gold rises, profits grow faster than the price of gold. This effect resulted in higher returns for investors holding gold-related stocks.

The chart below illustrates this trend, showing the S&P/TSX Global Gold Total Return Index (CAD) in red, whose fluctuations are more pronounced than those of the spot gold price.

U.S. Stocks: Oil Shock Hits Wall Street

U.S. stocks fell 2.7% in the first quarter of 2026.

U.S. stock markets experienced high volatility in the first quarter of 2026, as the war waged by the United States and Israel against Iran heightened geopolitical risks, particularly around the Strait of Hormuz, a crucial energy transit route. Supply disruptions in the Middle East and the risk of a broader conflict strained the oil market, contributing to inflationary pressures and heightening investors’ concerns about costs.

Market weakness intensified in March, with U.S. stocks falling 2.8% over the month. This broad-based decline affected all sectors, with the exception of energy, which benefited from the sharp rise in oil prices. The losses were primarily attributable to information technology, industrials, communication services, and healthcare, which accounted for the largest share of the market’s decline.

Weakness in technology and growth-oriented companies weighed on market performance. Microsoft fell 23.5% amid caution regarding cloud growth prospects following a previous sharp rise, while Tesla dropped 17.3% after first-quarter deliveries fell short of estimates. Meta also fell 13.3% as markets reassessed its valuation and growth prospects.

International Stocks: Weighed Down by the Oil Shock

International stock markets rose 0.5% (in Canadian dollars) in the first quarter of 2026. Japan stood out with a 3.7% increase, driven in particular by Toyota, which reported strong global sales. Growth was driven by hybrid and plug-in hybrid vehicles, while the company increased its production of electrified vehicles to meet growing demand.

In contrast, the major European markets fell: France -3.6%, Germany -6.7%, Switzerland -2.4%, Spain -0.9%, Italy -2.0%, and Denmark -11.9%. The eurozone’s industrial sector got off to a poor start this year, with Eurostat reporting a 1.5% decline in production in January, well below the 0.6% growth forecast. Rising energy costs, persistent inflation concerns, and current geopolitical tensions—particularly the repercussions of the escalating conflict between the United States and the Middle East—have weighed on investor sentiment, dampening growth across the region.

Emerging Markets: Semiconductor Powerhouses Drive Gains

Emerging markets rose 1.6% (in CAD) in the first quarter of 2026.

Taiwan rose 11.2%, driven by Taiwan Semiconductor Manufacturing Company (TSMC). Strong demand for AI-related chips and the company’s dominant position in cutting-edge semiconductor manufacturing supported robust revenue growth and attracted international investor inflows to this tech-heavy index.

South Korea surged 18.1%, led by Samsung Electronics following the announcement of the rollout of AI-powered 5G networks in partnership with Advanced Micro Devices (AMD) and the award of a 5G infrastructure contract with Canadian telecommunications operator Videotron.

Chinese stocks fell 7.0%, weighed down by weakness in the real estate market. Falling property prices have dampened consumer spending, slowed construction activity, and raised concerns about overall economic growth.

The Indian market fell by 16.7%, under pressure from growing geopolitical tensions in the Middle East and a sharp rise in crude oil prices, which led to significant outflows of foreign capital.

Bonds: Slight rise in rates

During the first quarter of 2026, the yield on 10-year Government of Canada bonds rose from 3.42% to 3.46%, causing their prices to decline slightly. However, coupon income offset this decline, enabling Canadian bonds to post a total return of 0.2% for the quarter.

This rise in yields reflects a readjustment of market expectations regarding future interest rates, inflation, and global risks. Additional upward pressure came from the yield on 10-year U.S. Treasury bonds, which rose from 4.18% to 4.30% amid geopolitical uncertainty, rising energy prices, and persistent inflation concerns.

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