Geopolitical tensions in the Middle East have escalated following the outbreak of conflict involving Iran, increasing uncertainty across global financial markets. Historically, markets have demonstrated resilience in the face of geopolitical shocks; however, developments in the region warrant close attention given Iran’s strategic importance to global energy markets and international trade routes. Our investment team is monitoring the situation closely, with particular focus on how events evolve and whether they begin to have broader economic or financial market implications.

To date, market reactions have been most evident in energy prices, as investors assess the risk of potential supply disruptions and heightened volatility in key shipping corridors. Sustained increases in oil prices could contribute to renewed inflationary pressures, which may complicate the path forward for central banks already balancing growth considerations against inflation objectives. Equity and fixed income markets may experience periods of heightened volatility as investors digest incoming information and reassess risk premiums, particularly in sectors or regions most sensitive to energy costs and global trade conditions.

As the situation evolves, our attention is focused on several key transmission channels through which the conflict could affect financial markets. We are closely monitoring developments in global energy markets, given Iran’s role in oil production and the importance of regional shipping routes for global supply. We are also watching for signs of broader regional escalation or impacts to critical infrastructure, which could increase market volatility and disrupt trade flows. Sustained increases in energy prices would have implications for inflation expectations and could complicate the outlook for central bank policy at a time when monetary authorities remain focused on balancing price stability and economic growth. Finally, we are assessing how shifts in investor sentiment and risk appetite may influence short‑term market dynamics across equities, currencies, and fixed income markets.

From a portfolio perspective, we believe maintaining diversification across asset classes, sectors, and geographic regions remains essential during periods of elevated uncertainty. While geopolitical events can drive short‑term market fluctuations, long‑term investment outcomes have historically been shaped more by underlying economic fundamentals and corporate earnings than by isolated geopolitical shocks. We will continue to actively monitor developments and assess potential impacts on portfolios, adjusting where appropriate while remaining focused on long‑term investment objectives.

Global Index Performance

Indices	Month-to-date at February 28  2026	1 year to February 28 2026
Canadian Bonds1	1.66%	2.25%
Canadian Large Cap Equities2	7.72%	8.63%
U.S. Large Cap Equities3	-0.05%	0.17%
Developed Market Equities4	5.39%	9.55%
Emerging Market Equities5	6.27%	14.28%

Source: FactSet as of March 6, 2026.

Fixed Income*

Canadian fixed income markets remained relatively stable through February as central banks displayed a cautious policy stance at the end of January, holding the overnight rate at 2.25%. Recent remarks from the Bank of Canada highlighted how supply-side forces, including geopolitical tensions, changing trade patterns, and demographic shifts are increasingly influencing inflation dynamics and complicating monetary policy decisions. The Bank of Canada is scheduled to make its next policy rate announcement on March 18th, with markets expecting the central bank to maintain a cautious stance as it evaluates inflation trends and global geopolitical developments.

While U.S. Treasury yields moved modestly higher during the month, markets continue to debate the timing and magnitude of potential rate adjustments in 2026 as inflation remains close to target but geopolitical risks have increased. Recent U.S. economic data suggests moderate growth, yet February payrolls declined and unemployment edged higher, pointing to softer labour market conditions.

Equities* 

In Canada, the S&P/TSX Composite Index outperformed and rose approximately 7.72% during the month, supported by strength in energy shares amid rising oil prices, while financials and technology also contributed to market gains. In the United States, equity markets were broadly flat over the month. Performance was driven by more defensive and cyclical sectors such as consumer staples, energy, and materials, while growth‑oriented sectors, including technology, lagged.

International and emerging market equities continued their strong performance in February. However, geopolitical tensions increased toward the end of the month and into early March as conflict between the United States and Iran intensified, contributing to heightened global market volatility. Oil prices moved higher amid concerns that the conflict could disrupt shipments through the Strait of Hormuz, a critical corridor for global energy exports. Higher energy prices have raised concerns that inflationary pressures could persist, potentially complicating the outlook for central bank policy.

 

Market Outlook

Heightened geopolitical uncertainty following the conflict involving Iran has added a new layer of complexity to the global investment environment. As economic data sends mixed signals, including signs of moderation in the U.S. labour market, central banks in Canada and the United States appear to be adopting a cautious, data‑dependent stance, opting to remain patient as they assess the effectiveness of monetary policy in an environment shaped by uncertainty and shifting global dynamics.

Geopolitical developments remain an important source of risk for financial markets. While markets have historically proven resilient to such events, recent tensions in the Middle East underscore how geopolitical shocks can influence commodity prices, inflation expectations, and short‑term market volatility, particularly if energy supply or global trade is disrupted. At the same time, efforts to strengthen international economic partnerships, including Canada’s engagement with key global trading partners, highlight the ongoing importance of supply chain security and strategic resource access.

For Canadian investors, diversification remains critical. Canada’s equity market is closely tied to commodity cycles, which can benefit from higher energy prices but also increase sensitivity to global economic and geopolitical developments. Maintaining balanced portfolios across asset classes, sectors, and geographic regions remains an effective approach to navigating periods of uncertainty while staying positioned to participate in long‑term market growth.

*Data sourced from FactSet as of March 6, 2026. 

 

 

 

1. As measured by the FTSE Canada Bond Universe Index
2. As measured by the S&P/TSX Composite Total Return Index
3. As measured by the S&P 500 Total Return Index in CAD
4. As measured by the MSCI EAFE Total Return Index in CAD
5. As measured by the MSCI EM Total Return Index in CAD