Insights & Resources

Investors in Canadian equities benefited again in February as the S&P/TSX Composite Index significantly outperformed the S&P 500 and Nasdaq, a trend that holds on a year to date (YTD) and rolling 1, 3- and 5-year basis. U.S. stocks also lagged European and Japanese markets in February and YTD. U.S. markets were choppy during the month as fresh concerns about the potential for Artificial Intelligence (AI) to trigger broader economic disruptions undercut software stocks in particular. On the final day of the month, Saturday, February 28^th, the U.S. and Israel attacked Iran, leaving markets poised to start March in an environment of heightened geopolitical uncertainty.

For the month, the S&P/TSX Composite Index rose 7.72%, the S&P 500 Index fell -0.79%, the Nasdaq Index declined -3.33%, the MSCI World Index gained 0.96% and the MSCI EAFE Index advanced 5.45%. In the U.K., the FTSE 100 Index climbed 7.04% while Germany’s DAX Index edged up 3.04%. In Asia, Japan’s Nikkei 225 gained 10.41% and the MSCI China Index dropped -5.82%. In the U.S., the yield on the 10-year Treasury note trended downwards in February and fell below 4% at month end for the first time since November (yields fall as prices rise). In Canada, the FTSE Canada Universe Bond Index rose 1.66% for the month. Gold recovered from its major slump at the end of January, rising 4.80% for the month. Silver plunged -12.85% in February and Brent crude oil rose 2.78%.

Monthly market developments

The pace of U.S. economic growth slowed in Q4, 2025 as GDP rose 1.4%, quarter-over-quarter, annualized. The data was below expectations but in part reflected a sharp drag from lower federal spending related to the Q4 government shutdown.

Yet the economy generated an impressive 130,000 new jobs in January, according to the Labor Department, and the unemployment rate fell to 4.3% from 4.4% in December. The solid January gains suggest the Federal Reserve System (the Fed) will not cut rates again before Kevin Warsh takes over from Jerome Powell as Fed chair in May.

However, annual revisions to jobs data, which are routine, pegged net job gains for all of 2025 at only 181,000, sharply down from an earlier estimate of 584,000. That is the slowest pace since 2010, aside from the pandemic year of 2020. Investors also noted that the robust January data was seemingly at odds with that from payroll provider ADP which said private hiring only grew by 22,000 positions in January.

U.S. factory production rose 0.6% in January from December, higher than expected and the most since last February, after being unchanged in December, according to the Federal Reserve. Production rose 2.4% from a year earlier.

Overall inflation unexpectedly eased to 2.4%, annualized, in January, down from the previous 2.7% annual rate, according to the U.S. Bureau of Labor Statistics. Yet U.S. wholesale inflation, measured by the producer-price index (PPI), unexpectedly rose 0.5% in January, more than economists’ 0.3% forecast. The cost of goods outside the volatile food and energy category increased by the most in more than three and a half years as businesses passed on import tariffs and raised prices at the start of 2026.

Retail sales were unchanged in December following a 0.6% bump in November as households trimmed spending on motor vehicles and other big-ticket items. The Commerce Department also revised down retail sales for October, falling 0.2% vs. the previously reported drop of 0.1%.

U.S. consumer confidence as measured by the Conference Board rose 2.2 points in February to 91.2 (1985=100), on a preliminary basis, and above an upwardly revised 89.0 in January. However, the gauge remained well below the four-year peak of 112.8 reported in November 2024 and hovered near levels last recorded in 2014, excluding the pandemic years of 2020-2021.

In a long-awaited decision, the U.S. Supreme Court ruled against the Trump administration’s tariffs. The White House vowed to pursue tariff-based trade policies by other means, but the decision leaves open the possibility of refunds (and litigation) for tariffs already paid by U.S. importers.

In Canada, the economy shrunk by 0.6% in Q4 2025, according to Statistics Canada, a weaker end to the year than a previous Bank of Canada (BoC) forecast of zero growth. A key drag were drawdowns of business inventories, particularly in manufacturing. These were offset by higher exports, household spending and government investments, especially in defense. Total GDP growth for 2025 was 1.7%, the slowest pace since 2020, largely due to fewer exports to the U.S.

The economy lost almost 25,000 jobs in January with the manufacturing sector and Ontario feeling the most pain. Yet the unemployment rate dipped to 6.5% in January, the lowest in 16 months, as fewer people were actively job hunting, according to Statistics Canada.

Annualized inflation edged down to 2.3% in January, slightly below expectations. Gas prices were 16.7% lower than a year prior, largely due to the cancellation of the consumer carbon price last April. Rent increases softened to the lowest level in nearly five years. Those declines helped offset persistent and strong food inflation, which climbed 7.3%, year-over-year, in January, up from 6.2% in December.

Canadian factory shipments fell by an estimated 3.3% in January, marking a third decline in four months, according to a preliminary Statistics Canada report. The official survey results will be released March 13. Total manufacturing sales increased 0.6% to $71 billion in December, after two consecutive monthly declines. Total manufacturing sales dipped 0.4% in 2025 in a difficult trade environment.

At month end Canada’s Big Six banks all reported fiscal Q1 2026 (calendar Q4 2025) earnings that beat expectations with collective profits of about $19 billion, well up from approximately $14 billion a year earlier. Yet underlying details indicate that while corporate financial health remained resilient in a tough year consumers are struggling.

The European Central Bank left its key interest rate unchanged as inflation remains close to the 2% target and trade uncertainty and European geopolitical tensions (specifically the Ukraine war) persist. In Germany the construction sector fell into contraction in January, but new manufacturing orders rose 7.8% in December.

In the UK, the Bank of England held rates at 3.75% in an environment of headline inflation easing in January to 3%, annualized, plus indications of softer growth and rising unemployment. GDP in Q4 2025 rose just 0.1% on the heels of downward revisions to earlier months. Growth for 2025 was also weaker than expected.

China’s private sector manufacturing Purchasing Managers’ Index (PMI) held at 50.3 in January, indicating some stabilization in demand and employment. However, the official manufacturing PMI for January dropped into contraction at 49.3 after a brief boost in December. The retreat reflected seasonal slowdowns ahead of the Lunar New Year and ongoing softness in demand.

Japan’s Q4 GDP ticked up 0.1%, quarter-over-quarter, below expectations. Tokyo’s Consumer Price Index eased in February, with core inflation excluding fresh food at 1.8%, annualized, a level below the Bank of Japan’s target for the first time in over a year. The cooling was driven primarily by lower energy costs, but services prices remained firm on higher labour costs and a weaker yen. Earlier in February Prime Minister Sanae Takaichi’s governing party won a two-thirds supermajority in parliamentary elections and Japanese stocks surged to a record high on the news.

The Reserve Bank of Australia lifted its key rate by 25 basis points to 3.85%, citing persistent inflation pressures that warranted renewed restraint. Expectations rose for another increase in May. January inflation rose at an annualized rate of 3.8% but the monthly increase was distorted by a rebound in electricity prices as earlier rebates unwound.

What can we expect now?

Several developments in February could reverberate throughout the year, specifically the U.S. Supreme Court tariff decision, the real or perceived impact of ongoing AI advances on jobs and industry and, more immediately, geopolitical tensions with the potential to drive up gas prices, a consumer cost almost as sensitive as already high food prices, in a U.S. mid-term election year.

Yet corporate earnings and investment markets have demonstrated remarkable strength over the past year despite some periods of sharp volatility. As 2026 heads into the final month of Q1 investors continue to show renewed interest in value and dividend paying stocks that consistently generate profits and cash flow over time. While not a new idea, the tremendous momentum of select sectors, notably technology, have often overshadowed more traditional investment themes. Striking an appropriate balance within the larger context of asset diversification and personal investment goals should always be a priority in financial planning focused on long term wealth creation and supporting retirement income.

Important Disclaimers

All index performance is in Canadian dollars.

The information in this letter is derived from various sources, including CI Global Asset Management, The Globe & Mail, The New York Times, Reuters, U.S. Bureau of Labor Statistics, The Financial Times, BNNBloomberg, The Wall Street Journal, and The Conference Board as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.