Macro Musings: The Age of Instability – March 2026

(performance data as of February 28, 2026)

The Quick-Hits

• Another strong month of equity returns, particularly outside of North America
• Small-cap equities significantly outperformed, despite large-cap growth being negative
• Investors appear to be ramping up diversification within and outside of the U.S.
• Credit and longer duration exposure both outperformed in bond land – clip those coupons
• Quote of the month:
  

  “You can’t spell tariffs without ‘ffs’”
  – Katie Martin, Financial Times

Macro Musings

When President Trump stepped outside in early February and saw his shadow, it indicated there was no end in sight to the Winter of Instability. More punitive tariffs, more AI doom-mongering and more military conflict. Maybe the bears have it right, and I should have stayed in hibernation…

In yet another eventful month full of sensational headlines, the U.S. Supreme Court ruled that the White House’s sweeping emergency tariffs were deemed illegal. In his majority opinion comments, Chief Justice John Roberts stated, “The President asserts the extraordinary power to unilaterally impose tariffs of unlimited scope. In light of the breadth, history and constitutional context of that asserted authority, he must identify clear congressional authorization to exercise it.”¹ In other words, the President cannot just decide to impose tariffs under the International Emergency Economic Powers Act (IEEPA). He is only able to do so with the backing of Congress, which he currently does not have (in fact, the House of Representatives even voted last month² to revoke tariffs imposed on Canada).

So, does that mean tariffs are off the table? Certainly not. Within hours of the Supreme Court verdict, Trump said their decision was a “disgrace to our nation”, that he was “absolutely ashamed of certain members of the court,” referring to them as “fools and lapdogs,” and insisted that their decision “doesn’t matter because we have very powerful alternatives.” He then quickly went on to impose blanket 15% tariffs globally using different statutory authorities.

But if the previous tariffs were illegal, people should be expecting refunds, right? Perhaps, but not the end consumers that ultimately paid the higher prices. It’s going to be the importers who have a claim on refunds, despite the fact that they passed those price hikes along to consumers. Adding insult to injury, there is not an insignificant number of importing firms that are, ultimately, Chinese-owned. So, in an ironic twist, tariffs imposed under the guise of penalizing China actually ended up penalizing American consumers and rewarding Chinese businesses. Put another way, the tariffs amounted to yet another transfer of wealth from poorer (consumers) to richer (corporations).

Putting tariffs aside, another destabilizing development came in the form of a blog post, The 2028 Global Intelligence Crisis³, from previously obscure firm Citrini Research, which promotes itself as providing insights on thematic equity investing and global macro trading. The post, which took the internet (or at least a nerdy corner of financial markets) by storm, can probably best be described as creative fiction – a stress test of an under-explored tail risk. The long-form post was a depressing, yet intellectually interesting, exercise in ‘gaming out’ what our artificial intelligence (AI) future might look like.

Written as if we were currently in June 2028, the narrative takes a retrospective look at the preceding two years, analyzing how an AI-driven economic crisis unfolded. As I read the post, I began asking myself, “Have we so quickly moved from talk of AI being a bubble to AI being so good that it’s bad?” The main premise of the post is that AI could bring about a negative feedback loop that continually feeds on itself. It goes as follows: Companies invest in AI → AI capabilities improve → companies need fewer workers → white-collar layoffs increase → displaced workers spend less → the economy weakens → companies invest in AI to protect their margins → AI capabilities improve…rinse, repeat.

Again, this wasn’t presented as the base-case scenario of where we’re headed, but its coherent, logically articulated narrative literally wiped out hundreds of billions of dollars from the stock market in short order. It speaks, perhaps, to the growing concern in markets of valuations and a potential rewiring of not just the economy but possibly society itself. Josh Brown, CEO of Ritholtz Wealth Management, offered counterpoints to the doom-and-gloom scenario presented on a recent podcast interview⁴. His view was that it’s completely unrealistic to think that all these negative effects of AI would stack one on top of another without any sort of beneficial impacts nudging reality in a different direction. Of fears of mass unemployment, he referred to a quote coined in the 1950’s, “work will expand to fit the time available.” In other words, humans always find new problems to solve. There will always be “frictions” we seek to overcome, and so long as there are frictions, there will be employment.

Investors currently seem to be going industry by industry and assessing where vulnerabilities lie. The aforementioned Josh Brown was also in the news this past month for coining a new acronym being used in financial markets: “HALO”, which refers to heavy-asset, low obsolescence companies that investors are scouring the globe for, as they seek to maintain equity exposure to safeguard themselves against the worst of the potential disruption. In a complete reversal of the entire post-financial crisis period, where everyone wanted asset-light businesses, companies like those operating in heavy industry have been hitting 52-week highs.

The rout in software-as-a-service (SaaS) stocks, recently dubbed “SaaSpocalypse”, reflects investor concerns that AI will completely disrupt the space now that individuals can use AI to create their own bespoke software for next to nothing. The indiscriminate selling in the space seems overdone, with some investors opportunistically picking up resilient potential ‘winners’ at significantly depressed valuations. Goldman Sachs, for example, recently launched a new pair-trade strategy where they’ve combined long positions on software stocks that “AI cannot realistically displace because they require physical execution, regulatory retrenchment or human accountability” with short bets against software-tilted workflows that AI could increasingly automate or rebuild internally⁵.

Software companies’ earnings predictability was once an asset that justified their high valuations. We may now see revenue become choppier for these firms and prices settle at lower levels. While the historical business models of software companies will need to be rewired, it’s hyperbolic to say the industry is dead. Winners and losers in the space will likely be determined not just by their product offerings, but by how they adapt their pricing models from a largely “per seat” subscription basis to one more linked to queries or outputs. In a world with potentially more AI agents completing tasks autonomously, the former model makes less sense.

In another Financial Times article⁶, the authors point out that it may become normal to think of AI agents as being akin to human workers and to start paying for them accordingly, blurring the line between IT spending and wage budgets. In fact, Goldman Sachs estimates software spending in the U.S. will almost triple to US$2.8 trillion by 2037, driven by productivity gains as human tasks get automated. So, tailwinds for software companies, headwinds for humans?

And if there wasn’t already enough turmoil to contend with, on February 28, “Operation Epic Fury” commenced with joint U.S.-Israeli strikes on Iran, including targeted attacks on military infrastructure and senior leadership, resulting in the death of their Supreme Leader, Ayatollah Ali Khamenei. As a result, Iran responded with retaliatory strikes across Israel and several Gulf states.

Of course, while the human toll is most important and tragic, we’ll focus on the economic impact, in keeping with the intent of our commentary. Iranian drone strikes on energy infrastructure in Qatar and Saudi Arabia have forced shutdowns or production pauses. With 20% of the world’s global oil consumption transiting the Strait of Hormuz, disruptions or outright closures of the Strait for more than a few weeks would have significant consequences on supply chains, particularly as the price of oil has climbed materially in the wake of these attacks.

At the time of writing, global equity markets are exhibiting risk-off behaviour, with declines across major U.S. indices like the Dow, Nasdaq and S&P 500 Index⁷. Within fixed income, risk-off sentiment initially pushed investors into treasuries, but renewed concerns of inflation risk pushed yields higher across the curve. While broad expectations seem to predict the conflict lasting a matter of weeks, not months, things are quite fluid, particularly with the broader region getting drawn into hostilities. According to Blackrock, they are “not changing our investment views while eyeing the risk of a more persistent shock. Developments in the Middle East also confirm core elements of our overall macro framing – this is a world shaped by supply, the AI theme remains the main global theme, and this reinforces why long-term government bonds are not reliable portfolio ballast given the potential stagflationary risks from an escalation of the latest Middle East conflict.”⁸

Equities

Keep in mind, we’re taking a retrospective look at February here, absent the recent bout of volatility in early March. Through that lens, we saw the Canadian equity market deliver returns of almost 8%, topping the charts of our best-performing indices. Positive returns were broad-based across all sectors except Information Technology and Real Estate, with Materials once again being the standout performer, up almost 22%, driven by precious metals. The top performing stocks in the index, all clustered in Materials, were First Majestic Silver Corp. (+54%), Novagold Resources Inc. (+53%) and Alamos Gold Inc. (+42%).

International equities, as measured by the MSCI EAFE Index⁹, had another excellent month, up 5.5%, buoyed by earnings growth expectations of around 15% in 2026. The EAFE market is also overweight cyclical sectors compared to the U.S. – such as Industrials, Materials and Energy – which provided strong tailwinds for returns. The strongest of the 21 countries that make up the MSCI EAFE Index was Japan, up 10% in February. In fact, nine of the 10 best-performing stocks in the entire index were Japanese companies, and every single one of them was up more than 30%, perhaps a real testament to the renewed enthusiasm around investment opportunities stemming from government reforms in the country. Leading the way were JX Advanced Metals Corp. (+64%), Sumitomo Electric Industries Ltd. (+54%) and Kawasaki Heavy Industries Ltd. (+42%).

In the U.S., small caps were up almost 1% and again outperformed large caps that were down almost 1%. Dragging down the S&P 500 Index were negative returns from sectors like Consumer Discretionary, Communication Services, Information Technology and Financials. Texas Pacific Land Corp. (+51%), Corning Inc. (+46%) and DaVita Inc. (+43%) were the best performers.
From an equity factor standpoint, it was dividends at the top and growth at the bottom in terms of performance hierarchy for the second consecutive month.
After a massively volatile January for gold, which saw its value jump and then subsequently decline by about $700/oz, the shiny metal climbed its way back to near record levels, finishing February at USD$5,278/oz for a 1-month return of 8%.

With regards to the Canadian dollar, despite some minor volatility in February, it finished essentially unchanged month-over-month.
The U.S. dollar also remained relatively unchanged versus a basket of global currencies¹⁰ in February, putting perhaps a pause on the USD weakening trend that began at the onset of 2025. With military hostilities picking up in early March, the currency appreciated as investors sought the relative safety of U.S. assets. However, if the conflict proves relatively short-lived, the weakening trend seems likely to resume. Let’s park discussion of the dollar for a moment and return to it further below as we delve into interest rates.

Fixed Income

Performance of both Canadian and U.S. bonds was broadly robust yet again in February, with the Canadian and U.S. “aggregate” benchmarks both up about 1.65%. It was government bonds, though, that outpaced investment-grade and high-yield corporate bonds. With slower job and GDP growth expectations, both raising the potential for a Bank of Canada (BoC) rate cut later in the year, investors bid up the price of government bonds. Meanwhile, credit spreads on both sides of the border widened, representing that investors are starting to demand more compensation (yield) for holding these bonds, which they feel have become riskier at the margin.

Neither the BoC nor the U.S. Federal Reserve (Fed) met in February, meaning Canadian policy rates remain at 2.25% and the Fed’s target range in the U.S. remains at 3.50-3.75%. Again, we’re recapping the month of February here, so while it is true that bond yields in Canada came down materially, boosting the performance of duration-oriented assets, there has been a quick reversal of that trend here in the early part of March. At the time of writing, the market is now expecting a 25-basis point hike from the BoC before year-end as investors believe inflation may be more persistent and growth more resilient than previously assumed. That, in turn, could spell headwinds for longer-duration bonds and potential reallocations of capital towards the shorter end of the yield curve for defensive posturing.

In the U.S., investors still have 50 basis points of rate cuts priced in, but that’s far from certain with the escalating situation in the Middle East driving up oil prices. If inflation begins to climb higher amidst an environment where affordability challenges abound, rate cuts seem ill-advised. As it stands, however, rate cuts are indeed expected, which would put further pressure on the U.S. dollar. The current U.S. administration has long stated its intention to maintain a ‘strong dollar’ policy, so rate cuts in an environment where inflation is persistent, and the currency is depreciating would certainly seem to indicate they’re moving towards a new ‘weak dollar’ regime.

It’s not often we speak about Japanese bonds here in Macro Musings, but it segues nicely with the last point about a weakening U.S. dollar and potentially lower interest rates. Recently, Japanese bond yields have increased significantly. You might be asking why you should care. Well, if Japanese bonds are now paying higher yields, perhaps the Japanese will prefer, instead, to buy their own domestic bonds. And, perhaps, international investors will follow suit. If you’re able to earn comparable yields relative to U.S. Treasuries, why not? If, or when, this trend takes hold, it will mean less demand for U.S. dollars and more demand for Japanese yen. We’ve talked about the tailwinds for international equity investors of late in both Canada and the U.S., and this additional potential boost from holding foreign currency could create an even wider gulf between international and U.S. equity performance.

Thanks, as always, for your attention. Have a great month of March. No need to wait for basketball – the madness is already well underway!

¹ U.S. Supreme Court, Learning Resources, Inc. vs. Trump, https://www.supremecourt.gov/opinions/25pdf/24-1287_4gcj.pdf
² Council on Foreign Relations, Articles, The House Votes to Rein in Trump’s Canada Tariffs, February 12, 2026, https://www.cfr.org/articles/the-house-votes-to-rein-intrumps-canada-tariffs
³ Citrini Research, The 2028 Global Intelligence Crisis, A Thought Exercise in Financial History, from the Future, February 22, 2026, https://www.citriniresearch.com/p/2028gic
⁴ Vox Media, Prof G Markets podcast, “Why a Doomsday Blog Wiped out $300 Billion”, February 25, 2026. https://open.spotify.com/episode/7oE3bt1tq9JXyZ4Jr4VO3V?si=8de37e9008504759
⁵ Financial Times article, “Shareholders Resist Urge to ‘Buy the Dip’ as Final Outcome of AI Disruption Remains Unclear”, February 17, 2026
⁶ Financial Times article, “Software Isn’t Dead, but it’s Cosy Business Model May Be”, February 16, 2026
⁷ The S&P 500 is an index of 500 stocks designed to reflect the risk/return characteristics of the large-cap US equity universe.
⁸ Blackrock, “Middle East Conflict: Energy Risks in Focus”, March 2, 2026, https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/middle-east-conflict-2026
⁹ The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. and Canada.
¹⁰ US Dollar Index (DXY), MarketWatch, https://www.marketwatch.com/investing/index/dxy

This commentary is for general informational purposes only and does not constitute investment, financial, legal, accounting, tax advice or a recommendation to buy, sell or hold a security. It shall under no circumstances be considered an offer or solicitation to deal in any product or security mentioned herein. It is only intended for the audience to whom it has been distributed and may not be reproduced or redistributed without the consent of Guardian Capital LP. This information is not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation.

The opinions expressed are as of the date of publication and are subject to change without notice. Assumptions, opinions and estimates are provided for illustrative purposes only and are subject to significant limitations. Reliance upon this information is at the sole discretion of the reader. This document includes information concerning financial markets that were developed at a particular point in time. This information is subject to change at any time, without notice, and without update. This commentary may also include forward-looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. Investing involves risk. Equity markets are volatile and will increase and decrease in response to economic, political, regulatory and other developments. Investments in foreign securities involve certain risks that differ from the risks of investing in domestic securities. Adverse political, economic, social or other conditions in a foreign country may make the stocks of that country difficult or impossible to sell. It is more difficult to obtain reliable information about some foreign securities. The costs of investing in some foreign markets may be higher than investing in domestic markets. Investments in foreign securities are also subject to currency fluctuations. The risks and potential rewards are usually greater for small companies and companies located in emerging markets. Bond markets and fixed-income securities are sensitive to interest rate movements. Inflation, credit and default risks are all associated with fixed-income securities. Diversification may not protect against market risk and loss of principal may result. Index returns are for information purposes only and do not represent actual strategy or fund performance. Index performance returns do not reflect the impact of management fees, transaction costs or expenses. Certain information contained in this document has been obtained from external parties, which we believe to be reliable; however, we cannot guarantee its accuracy.

Guardian Capital LP manages portfolios for defined benefit and defined contribution pension plans, insurance companies, foundations, endowments and investment funds. Guardian Capital LP is a wholly owned subsidiary of Guardian Capital Group Limited, a publicly traded firm listed on the Toronto Stock Exchange. For further information on Guardian Capital LP, please visit www.guardiancapital.com. All trademarks, registered and unregistered, are owned by Guardian Capital Group Limited and are used under license.

Published: March 11, 2026