Geopolitical Shocks and Portfolio Resilience

“The strong do what they can, and the weak suffer what they must.” Thucydides wrote those words 2,400 years ago about the Peloponnesian War. In the first quarter of 2026, they were quoted by Canadian Prime Minister Mark Carney at the World Economic Forum in Davos, Switzerland echoed in oil markets rattled by conflict in the Middle East and felt in trade relationships reshaped by tariffs. It was that kind of quarter.

Executive Summary

The first quarter of 2026 was shaped by two powerful and interconnected forces: the escalation of the Iran conflict, which sent oil prices surging and re-ignited inflation fears, and the ongoing pressure of U.S. tariffs, which continued to weigh on global trade and growth. Against this backdrop, equity markets experienced sharp volatility and central banks held firm. For over 60 years, Portfolio Management Corporation’s investment approach remains unchanged: focus on high quality businesses, maintain diversification, and keep your long-term goals front and centre.

Policy Backdrop in Ottawa: Carney at Davos

The quarter opened with a landmark moment in Canadian foreign policy. On January 20, 2026, Prime Minister Mark Carney delivered a widely praised speech in Davos, titled “Principled and Pragmatic: Canada’s Path.” The address set the tone for Canada’s approach to trade and geopolitics for the year ahead and was widely seen as a response to the aggressive U.S. tariff posture toward Canada and its allies.

Carney opened with a reference to Thucydides “the strong do what they can, and the weak suffer what they must” and warned that this logic of unconstrained great power rivalry was reasserting itself in the modern world. He argued that smaller nations face a temptation to simply comply and accommodate, hoping that going along will buy safety. His message was blunt: it won’t. “We are in the midst of a rupture, not a transition… Middle powers must act together because if you are not at the table, you are on the menu.” Carney called the world’s middle powers to work collectively rather than negotiate bilaterally with hegemons from a position of weakness.

For Canada specifically, he outlined a strategy of economic diversification – actively pursuing new trade agreements across multiple continents and removing interprovincial trade barriers at home rather than deepening dependence on any single relationship. The practical implication for investors is a Canadian government firmly committed to expanding trade relationships and reducing economic concentration risk – a policy direction that, over time, should support the long-term resilience of the Canadian economy.

Bank of Canada: On Hold Amid Renewed Uncertainty

Facing a more difficult backdrop than anticipated at year-end, the Bank of Canada held its policy rate at 2.25%. The energy shock from the Iran-U.S. tensions that has re-ignited inflation concerns, while the drag from U.S. tariffs on Canadian exports has complicated the growth outlook. With inflation and growth pulling in opposite directions, the Bank’s tone has turned more cautious, with future moves heavily dependent on incoming data.

The Canadian Dollar: Partial Support from Higher Oil

The loonie traded in the 0.72-0.74 USD/CAD range during Q1, finding some support from higher oil prices given Canada’s role as a major energy exporter. Continued uncertainty around global growth and the ongoing impact of U.S. tariffs on Canadian trade, however, limited any meaningful gains. Currency markets remain sensitive to international developments.

What Changed Globally: Iran, Oil, and Market Volatility

The escalation of the Iran-U.S. conflict was the defining market event of the quarter. Oil prices briefly surged above USD 120 per barrel as shipping routes through the Strait of Hormuz were threatened, before pulling back on intermittent hopes of de-escalation. Gold reached record levels above USD 5,100 per ounce as investors sought safety. Global equities saw sharp drawdowns followed by rapid recoveries tied to geopolitical headlines. As Anish Chopra, Managing Director at Portfolio Management Corp., told The Canadian Press on March 3, 2026: “Markets are trading in a risk-off mode as investors are concerned by the conflict in the Middle East… the concern around oil and gas prices rising is a resurgence in inflation.”

What This Means for You

Geopolitical conflict, renewed inflation risk, and U.S. tariff uncertainty are all converging to create a more complex investment environment. Quality, diversification, and discipline remain our guiding principles.

• Stay focused on high-quality companies with healthy balance sheets and durable cash flows.
• Keep portfolios diversified across sectors and geographies.
• Monitor energy price developments and their second-order effects on inflation and interest rates.
• Hold liquidity to take advantage of buying opportunities that market volatility can create.

PMC will continue to monitor risks and opportunities and make measured adjustments with your long-term goals front and centre.

Client Question Corner

Why is naming a successor holder or beneficiary important for your accounts?

A successor holder is someone who becomes the new holder of a TFSA or RRIF when the original account holder dies. This option is only available to a spouse or common law partner. It ensures that when the successor takes over the account: it remains open, there are no tax consequences, and the contribution room remains unaffected.

A beneficiary is a person or entity designated to receive the funds from a registered account upon death of the account holder. Beneficiaries can include children, grandchildren, other individuals or charity organizations. In this case, funds are paid out to the beneficiary and the account closes. Tax implications may apply depending on the type of account and beneficiary’s relationship to the deceased.

Properly designating a successor holder or beneficiary on your registered accounts can help minimize taxes, avoid probate, and ensure faster, smoother asset transfers. Your designations should be reviewed with your estate attorney and/or accountant to ensure ease of estate administration.

PMC in the News

1. Anish Chopra interview with The Canadian Press: Technology stocks weigh on Canada, U.S. markets amid risk-off rotation
2. Anish Chopra interview with The Canadian Press: S&P/TSX composite tumbles 2 per cent, U.S. markets also down on Mideast war fears
3. Anish Chopra interview with The Canadian Press: Markets edge higher ahead of interest rate decisions from BoC and Fed

Articles of Interest

1. My grandpa stayed sharp, social, and full of purpose into his 90s. His secrets to success are simple.
2. It's the first tax season since the CRA revamped its services. Here's what to expect
3. Hormuz Disruption Set to Hit Fertilizers, Metals and Plastics Worldwide

Commentary has been prepared by Portfolio Management Corporation (PMC) for informational purposes only and is not intended to provide any financial, tax, or investment advice, and does not take into account your particular investment objectives or financial situation. Before acting on any information, you should consider the appropriateness of the information and speak with one of our portfolio managers. This information has been drawn from sources believed to be reliable. All securities transactions involve risks, including the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This commentary may contain forward-looking statements that are predictive in nature which reflect current views on expectations and market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. Portfolio Management Corporation does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof to reflect eh occurrence of unanticipated events. While due care has been used in the preparation of forecast information, actual results may vary in the materially positive or negative manner. Past performance is not a reliable indication of future performance.