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Hello everyone. Today, March 16. I'm going to try to quickly review a quarter during which a lot has happened, and a lot is still happening as we speak.

Without further ado, I think the best way to summarize the last few weeks is just to point out that we've essentially witnessed a substantial and rapid increase in the pace of change across multiple fronts. Specifically on the geopolitical front with what's going on in Iran as we speak, but also under the technological front with ongoing advances in AI, which have been raising a lot of questions for a lot of businesses. From a high-level point of view, the consequence of all of this is to raise uncertainty at a new scale. And we should probably get used to that because we used to be talking about uncertainty from a cyclical point of view. But nowadays, we believe that uncertainty has become structural. And again, this raises a lot of questions.

But for today, I think we should just take some time to look at what the market has been telling us over the last year in terms of consequences. And the market has been telling us essentially three things, one of which being that we should expect bouts of volatility as we have seen last year during the tariff tantrum, but as we're seeing more recently. But beyond this volatility, we are still witnessing a pretty good resilience on the part of markets, which goes to show that beyond these shocks, economic activity is still somewhat moving forward, although this is only true if you're adequately diversified because within the equity investment universe, we are seeing substantial divergence across sectors, but also across geographies. For instance, U.S. equities are still lagging, essentially flat since last October, whereas you're seeing better gains elsewhere, although this gap has narrowed recently, which again goes to show that volatility is also being felt within the equity investment universe. And the reason why U.S. equities have been doing a little better recently is that they're less sensitive to rising energy prices, as we are witnessing. And for good reasons, because there's just no more important choke point for energy markets than the infamous Strait of Hormuz, which is practically closed as we speak. Nevertheless, oil prices have not increased as much as what we saw during the Russian invasion of Ukraine in early 2022. And most importantly, you're seeing that markets are treating this situation as being partly temporary, in the sense that futures prices—so the price for a barrel of oil 12 months from now—have increased.

There are long-term consequences here, but just not as much as you're seeing for more short-term prices, which is reasonable in the sense that the current situation is just unsustainable for all parties involved. We'll have to monitor this because unfortunately the range of scenarios here is still pretty wide. But for today, what I would emphasize is that there are reasons to believe that we're not going to be repeating what we saw in 2022, which many of you will remember as a pretty challenging year for both equities and bonds. Because back then, you have to remember that just before the Russian invasion of Ukraine, we were already seeing leading economic indicators pointing towards a deceleration in economic activity. Whereas today, it's rather the opposite, in the sense that leading indicators are pointing to a cyclical upturn, which we were starting to see recently, but which is arguably, and most definitely, more at risk here. Let's be clear, given that we're going to be seeing inflation be much higher than we hoped before this Iran situation emerged.

Three takeaways for today. From a high-level point of view, it's not complicated here. We are undergoing a period of profound and vast changes, which creates a lot of uncertainty, which makes markets quite volatile, especially within the equity market universe. If you're adequately diversified here, the damage is pretty limited. And when you look at it, there are reasons to believe that this combination—volatility, resilience, and divergence—will remain the story over the next few months. Although the resilience part will be put to the test here, because risks around the scenario have undeniably increased given the rise in energy prices and global commodity prices, and the consequences for inflation. 

That's it for today. Thank you for listening and we will talk again in June. Have a great spring everyone. 

Hello everyone, welcome to Economic Impact. We are Wednesday, February 18th, 2026. Stéfane, great to see you again.

Nice to see you.

What a week and we're only Wednesday.

It's a big week for Canada.

I know it's an amazing week for Canada. So before we start, the last time, I think we're going to do it every call because I love this. So, all the little brackets were on the right side of the line. So, can you tell us what happened in the last not even 4 weeks?

So, we had positive returns when we saw each other last month.

Yeah.

The year is still young, obviously, but it's actually more positive than it was last month. And notice, Nancy, positive for everyone except maybe 1 market, the U.S., which we'll speak to, but notice that, you know, everything related to the reflation trade that we spoke to last month shows positive returns. Emerging markets, the S&P TSX, Europe. So, all in all, it's still this concept that earnings are likely to accelerate this year with higher commodity prices.

And as it was in 2025, it's still very concentrated the investments that are being made. So, you have a slide that's very interesting about AI.

Well, what happened last year and what people said, well, okay, AI, if you look at the hyper scalers, they're investing a formidable amount of money in this. And for 2026, the investment plan is more than $680 billion. That's only four companies Nancy. So that would account for roughly 2.1% of GDP with just four companies.

Wow.

This has never been seen before. If you want to make a historical comparison to other big projects in the U.S., if you go back to 1850-1859 when they built the railroad system in the U.S., they were spending 2.2% of GDP all these companies put together. If people want to compare it now, the AI cycle versus the Internet cycle, well the Internet cycle was consuming 0.8% of GDP annualized. So the 2.1%, these people, are they spending too much? Will this be a fuel, a Dutch disease where the AI sector is taking all the capital and with diminishing returns? So, that's what we're seeing this year a little bit more concerned. So, when I said the US dollar, the S&P 500 was down year to date, it's mostly because of IT, because look at everything related to what we spoke to last month. U.S. reindustrialization, rebuilding the electrical grid, all these sectors are up 16, 21, 12%. So, it's a big sector rotation happening within U.S. equities.

So that means markets are thinking that this reindustrialization will work. That's what we're seeing here.

Yeah. And, and as you said before, and as you've told me before, does that mean the AI cycle is dead? No, but everyone was overweight AI coming into 2026. So, it's a sector rotation given the question marks regarding the profitability that was promised, will they deliver this year?

Yeah. And last time we spoke, we spoke about gold. So, I think it's going to be a subject of this conversation again today.

Oh, we have to because, so anything related to the energy sector, materials, industrials doing good in U.S., Canada, energy is doing well. If you're going to deploy, we spoke about it, you want to deploy AI, it's energy intensive. So, a big increase here. Notice materials however, it's up 18.3% and it's having a formidable impact on both our economy and the perception of what's really happening in the economy is being, I think, biased by gold. Let me explain. A lot of people are saying well Canada is finally diversifying out of the U.S. We have found a formula to diversify. Look at the exports to U.S. down 10%, which has never been seen outside of recession and non-U.S. exports are up 20%.

So, who's our new friend?

Well people are asking me name countries that are our new friends and I can't find any, Nancy, because it's not a friend, a country friend per se. It's really one commodity that is our best friend right now. It's gold prices at roughly $5000 an ounce. If you go back to 1791 and you price gold in 2025 dollars, that's well above the historical average of $650.

So, there's a funny story about the $650. So, talks about men’s suits. So, you want to tell us about it? 

Well, I can't, you know, I can only speak for men’s suit, unfortunately, on that one. But historically, people have associated the-.

The ounce?

Yeah, the equilibrium value of gold, 1 ounce of gold should be equal to your ability to buy a decent suit if you're a man. So right now, as you can see at $5000, those men at home that have a lot of, you know, some ounces of gold.

A lot of gold can have a very nice suit.

Or they can go shopping for many suits.

Yeah and 650 you can still have a reasonable suit in Canadian dollars today, right?

So, the point is we're well above the historical average. Last time we were there was 20 years ago. You can remain above 650 for quite some time. The geopolitical complex or backdrop is supportive of gold prices, but it stretched. So, our view for the next 12 months or so, it's a target range for gold of four to five, 6000. So, it might be volatile, but we're not collapsing it because we know the central banks are buyers. So, there is still some support and U.S. dollar is still set to depreciate.

And so, without gold, what would we look like?

Well, it really shows that we don't have really good friends right now, new best friends, because the reality is our trade balance is a negative, a deficit of $30 billion right now for Canada. If you were to exclude gold or surplus on gold, which is driven by prices, our trade balance would be a deficit of $80 billion, two and a half times greater. See how important that is? Because that's supporting the currency, it's supporting the stock market and it's supporting our exports.

Yeah. So, gold takes over all the other categories now. It's never seen before?

Well, if you think this is interesting, well, at least the next one, which shows that the market capitalization of gold stocks surpasses energy for the first time ever in Canadian history. So, that speaks to the importance of gold because that's been a key driver of the S&P TSX. So, gold is still popular with investors going into 2026 because a lot of people were not overweight gold. So, there's some catch up there. You have to go back to neutral. So, it is supportive and as I said, the backdrop is supportive, but it's important to tell our clients that this is a stretched.

Rebalancing, diversification. Those are the principles, right?

It's a crowded trade. Doesn't mean that you don't remain crowded for a while, but be wary of how gold is impacting the economy and the stock market.

So, we have a couple of minutes left. Can we talk about the announcement from our Prime Minister, Mr. Carney?

Okay so we need to find new friends, right?

We do.

And one way. So in order to find new friends, we need to reindustrialize and we have spoken to that last month or in previous discussions. And the reality is that was the big news that came yesterday where the federal government is pledging to spend billions of dollars in order to find us new friends. How do we do this? By reindustrializing. And, it's a big deal, Nancy, because it's the first time that I can recall in many years that we're deploying in industrial strategy based on our defence spending with a procurement system that might favor our domestic corporations. And you know what? It's so big. And the money spent, 5% of GDP. We haven't seen this since the Korean War. It might entice people to come from overseas.

And invest.

And invest here in Canada with a transfer of intellectual property to actually build stuff in Canada to benefit, obviously.

Our economy.

And the manufacturing sector, right?

And therefore, if we are investing, all of this will create jobs. We'll create good jobs. How does it look right now?

We need jobs.

We need jobs.

Yeah, well, it depends where you live. But really the reality is Quebec and Ontario, who are mostly or the biggest manufacturing hub in the country, have seen disappointing job markets. So, full time jobs, they're barely up in the territory, they're down in Quebec, but total employment is down in Ontario. So, out West, if you want to look at the four large provinces, in order to simplify the chart, there's a regional divergent so you can see who's being hit with the uncertainty about the manufacturing sector. Hence the importance of this plan that was unveiled yesterday. Finally, we are willing to reindustrialize and that's how we make new friends.

Well, Stéfane, thank you for this great conversation. Looking forward to next month, there's going to be a lot of things happening, I'm sure. Thank you for all of us for attending this little conversation, and we'll see you again next month.