Despite tariffs and turmoil, discipline, patience, and diversification should benefit your investment portfolio
By Olev Edur
The past year and a half has been a crazy period of uncertainty for Canadian retirees, as we’ve endured the economic fallout from U.S. president Donald Trump’s whimsical on-again-off-again tariff onslaught, not to mention, more recently, the consequences of his unauthorized military adventures in the Middle East and elsewhere. But despite our worst fears, the Canadian stock market has fared remarkably well…so far.
Indeed, the S&P/TSX Composite Index gained a whopping 32 per cent in 2025 (as compared to the U.S. S&P 500’s 14 per cent). And the upward trend continued this year—within the first few months of 2026, some sectors, notably energy and materials/ resources, had generated double-digit yields, propelling the S&P/TSX to new record highs. So, given all the gloom and doom over the past 18 months about the potential economic impact of Trump’s tariffs, why have our stock markets been doing so well?
“It’s an interesting situation, where the investment markets don’t reflect overall economic activity,” says Kathryn Del Greco, senior investment adviser at TD Wealth Private Investment Advice in Toronto. “Stock markets really reflect the experiences of larger businesses, not what’s happening on main street with mom-and-pop businesses. Markets reflect the earnings and business growth of large publicly traded companies.
Sometimes there’s a disconnect between what you and I feel and what these large corporations are doing.
“It’s been a difficult political environment that’s been changing day to day if not hour to hour,” Del Greco adds. “But the longer it goes on, the more the markets start to discount what’s going on. That’s what markets do: they respond very quickly to news, and then they continue to rise and look at other factors. It’s often said that markets ‘climb the wall of worry,’ and last year was a good example.”
Uncertainty No Longer an Issue
This view is echoed by Philip Petursson, chief investment strategist at IG Wealth Management in Toronto and co-author of the latest IG Investment Strategy Team (IGST) market report.
According to the report, “The biggest theme heading into 2025 was uncertainty around the U.S. election and what a Trump administration might mean for investors. Our highest-conviction view was that tariffs would be front and centre. And while political policy matters, it rarely carries the long-term influence on equity-market performance that many assume.
Despite the unknowns, we believed that equity and fixed-income markets would continue to reward patient investors. That’s a fair summary of what played out in 2025.
“The year began with an air of uncertainty,” the IGST report adds. “Between Inauguration Day and the so-called ‘liberation day,’ markets wrestled with those questions. The U.S. S&P 500 index fell by 18.9 per cent between February 19 and April 8 and the S&P/ TSX Composite dropped by 12.7 percent; other markets declined in sympathy. Then came the reversal—on April 9, President Trump backed off tariffs— seemingly in response to market declines—sparking what became known as the ‘TACO’ (Trump always chickens out) trade. Following the 18.9 per cent drop, the S&P 500 recovered its prior highs in just 55 days. Since then, while tariffs remain in some form and deals continue to make headlines, equity markets have behaved as if nothing happened.”
“Markets don’t hate tariffs; they hate uncertainty,” Petursson explains.
“Once clarity returned, investors and corporate management could refocus on business fundamentals. And business has been good. Fears of recession have faded, and interest rates have come down. Investors embraced the trend, pushing equity indices in the U.S., Canada, and globally to new all-time highs.”
The Future Looks Positive
So, what’s ahead? Are we about to pay the price for such investor exuberance, as tariffs begin to bite deeper into the Canadian economy and the Canada-U.S.-Mexico trade agreement (CUSMA) faces extinction? Or will gradually emerging congressional as well as judicial resistance to the tariff game portend further strong growth and bring some sorely needed discipline to U.S. trade practices?
“If 2025 taught us anything, it’s that volatility isn’t the nemesis of portfolio performance; panic selling is,” Petursson says. “Investors who kept their heads through the uncertainty were rewarded in the end. And as we look ahead, that lesson remains as relevant as ever: discipline and patience are the cornerstones of successful investing. We look at many things in the economy and actually see little indicating that it’s doing poorly. The Canadian economy has been quite resilient, and despite the silliness of U.S. policies, recession risk is quite low. Rail loads are rising, shipping is on an upswing, corporate earnings are strong, and on balance, the economy should do quite well in 2026.”
Noting that Canada was one of the top performing markets in the world in 2025, behind only Japan, Del Greco is similarly upbeat. “We remain constructive about the stock market,” she says. “Earnings are up—we’re looking at an overall yearly increase of 13 to 15 per cent growth this year and next year, with high single-digit or low double-digit returns for investors. We’ve had some pretty explosive growth over the past couple of years, and now we’re looking at more normalized returns this year and next. We’re quite positive about the outlook. Our economy has been resilient, and the federal government has been growing investment-favourable policies.
This should offset any uncertainties. The financial and resource industries—which are the biggest components of the overall TSX composition—should do particularly well.”
In support of this conclusion, the IGST report cites all of the following as positive signs:
• Manufacturing output is improving.
• Inflation is stabilizing. (However, the full ramifications of the Middle East war had yet to be ascertained; see below.)
• Financial conditions (i.e., interest rates) have become more accommodative.
• Housing starts are improving.
• Unemployment is modestly declining.
• Most leading economic indicators are improving.
The net result is that, despite the bad news we may still be hearing from the media and other sources, the economic situation really isn’t bad. Nevertheless, there may be a few emerging factors that could change the investment outlook to some extent.
War in the Middle East
At press time, for example, the American/Israeli war against Iran had been continuing for several weeks and the price of oil was soaring. What long-term effect might this have on an otherwise rosy investment outlook?
For starters, Petursson points out that the war has already had a very positive impact on energy producers due to the dramatic rise in oil prices, but he acknowledges that longer term, there could be some negative fallout. “The energy sector has become very strong as a result of the Middle East war, and energy stocks have looked very attractive,” he says.
“But the longer the war continues, the more it may weigh on the global economies, because higher oil prices can lead to higher inflation. The war does create a certain level of uncertainty, which can lead to market volatility— that’s the challenge.
“Then again, wars happen all the time,” Petursson notes. “This time it’s in the Middle East, so there’s an impact on energy. Higher oil prices equal a tax on consumers worldwide, and that can lead to higher inflation. We don’t know how long it will last, and the markets might see some volatility, but companies tend to perform well in many different environments. There may be some volatility, and bond yields have already started moving up based on inflation expectations, but this will pass. It always does.”
And so, what are retirees who are concerned about their investment portfolios to make of all these latest developments? While Petursson and Del Greco both remain upbeat about the future, might there nevertheless be some choices to be made? Are there certain opportunities yet to come or areas that should be avoided? Also, how are global markets faring amid all this tariff turmoil? What about growing talk of a whole new global trading order? Where might all this create new investment opportunities?
Markets Abroad Look Promising
Petursson suggests that those looking for fresh places to park their savings may do well to avoid the normally attractive U.S. market. “Canada is still tied to the U.S.,” he says. “We’re not immune to what happens there, but our exposure to commodities and sectors such as gold, oil, and banking almost guarantees good returns.”
However, while Canada is in a strong position, Petursson says, the best investment opportunities, at least in the near future, may lie overseas.
“We see the rest of the world having a competitive advantage compared to the U.S. For investors, it would be advantageous to look farther afield than the U.S.”
He suggests that the so-called BRIC countries (Brazil, Russia, India, and China), for example, may offer investors particularly good value. “Emerging markets look very attractive,” he points out. “There are upticks in business, and valuations are attractive, with decent earnings growth. The strength is fairly broad-based.”
Indeed, the IGST report notes: “One of the clearest signs of an improving economic backdrop is the rebound in global trade. We’ve moved past the recessionary environment of 2023 and beyond the uncertainty of tariffs into a renewed economic cycle. Today, global activity is quietly turning higher.
Purchasing Managers’ Indices [measures of the health of the manufacturing and service sectors] are improving, trade volumes are stabilizing, and cross-border flows are picking up. These are not late-cycle signals. They are signs of re-acceleration.”
Fixed-Income Assets
Despite the strong signals from global equity markets, though, investors— particularly those who are risk-averse—shouldn’t lose sight of the benefits of diversification into fixed-income investments. The Middle East war in particular could put a damper on global as well as domestic growth for some time, especially if the Strait of Hormuz— which is immediately adjacent to Iran and through which some 20 per cent of the world’s oil flows—remains impassable for an extended period.
Unfortunately, there was no way at press time to forecast the duration and outcome of the war or the resulting effect on inflation and hence global economic growth.
Another potential fly in the ointment, according to Petursson and others, has been the dramatic rise in valuations attached to the development of artificial intelligence (AI), which by press time had grown to represent an overriding factor in recent stock-market growth.
“Could there be overspending on AI?” the IGST report asks. “Possibly, but given we are still early in the AI infrastructure buildout, any excess likely won’t materialize until well beyond 2026. The AI-driven boom in capital expenditures, research, and development remains a genuine growth engine.” Nevertheless, the report goes on to acknowledge warnings from some quarters of an AI “bubble.”
So while both Petursson and Del Greco remain positive about the near term, there are some warning signals worth heeding, and for those who would prefer to avoid those negative consequences, a defensive move towards fixed-income assets may be advisable. “Bonds are good instruments for diversification, as a balance to some of the expected volatility,”
Petursson says. “In fact, diversification always pays off. It’s absolutely essential.” He adds that his team expects bond yields in the near future to be in the low- to mid-single digits.
A High-Quality Diversified Portfolio
Both Del Greco and Petursson suggest that the best approach, in any market conditions, is to work with an experienced investment adviser to build an investment portfolio that’s geared specifically to your needs and preferences and to rely on him or her to guide you through any rough patches
“First and foremost, the most important thing you can do is build a strong financial plan,” Del Greco says.
“You need to understand where your overall financial foundation should be, and that means having a professional financial planner do a plan that’s right for you. In building the plan, you should look for areas that need to be addressed, for financial potholes, and talk with your planner about risk tolerance, price changes, and time horizons and build an invest- or profile that reflects your goals.
“Are you an investor or a speculator? The latter is interested in the short term and goes further out on the risk curve, so we don’t have advice for them,” Del Greco continues.
“But if you’re an investor, you want to stay with quality investments and advisers, who are particularly important in a challenging environment. They can move quickly and respond 24/7 to market developments. They can be proactive or defensive, depending on what’s required. In building your portfolio, you start with the big overview, and then you can look at opportunities in fixed income and equities. Are you properly diversified geographically and in terms of asset class and sector? Finally, you can look at individual holdings. If you have good active management and quality investments, you can stay invested and shouldn’t have any worries.”
