Episode 121 | “Back-to-school” themed market outlook

Episode overview In this episode of Investments Unplugged, host Kevin Headland is joined by U.S.-based Co–Chief Investment Strategists Emily Roland, CIMA, and Matt Miskin, CFA, for a “back-to-school” themed market outlook, along with their views on portfolio positioning, for the remainder of 2026 and into 2027. Using a “report-card” framing, they assess: ·       The overall economic backdrop, with a focus on labor market signals and “Goldilocks-like” conditions ·       The role of AI-led capex and its effects on manufacturing activity and market leadership ·       The state of corporate earnings, equity market valuations, and market breadth ·       Why fixed income may be re-emerging as a more compelling portfolio building block Key topics & insights 1. Economics 101: a “Goldilocks-ish” U.S. economy, but with softer edges Ø  The U.S. economy is given a report-card grade of roughly a “B / B+”; it’s not overheating, nor is it on the verge of collapsing. Ø  The labor market is characterized as “no-hire, no-fire,” with limited layoffs and low jobless claims but some signs of cooling. Ø  There has been some softening in consumption and sentiment (e.g., weaker retail sales, worth monitoring closely. 2. AI as a new cycle driver: capex, computing power, manufacturing renaissance Ø  AI is described as a powerful economic engine in today’s environment, driving a surge in business investment and data-center buildouts. Ø  AI demand is a catalyst for manufacturing and industrial activity, with knock-on effects beyond just mega-cap technology space. Ø  However, what consumers/businesses say they’re going to do might differ from what they actually do, so tracking hard activity data will be key. 3. Earnings power and market breadth: Stocks have tended to follow profits over time Ø  A broad-based boom in corporate profits has been supporting the equity market in recent quarters, extending beyond just the big mega-cap tech stocks, Ø  For example, “old economy” segments of the market (notably, the energy and financials sectors) have been delivering strong earnings growth as well. Ø  Similarly, recent equity market performance has also broadened, with several areas outside the U.S. large-cap growth space doing comparatively better. 4. Market valuations and the risk of “great expectations” on the part of investors Ø  While equity valuations had been stretched earlier this year, price/earnings (P/E) multiple expansion has been moderated by stronger corporate earnings. Ø  The key risk: If earnings growth and AI-related capex were to slow, areas of the market currently priced for favorable outcomes could respond negatively. Ø  The portfolio implication for investors: Stay diversified across and within asset classes, try to avoid “overconcentration” in a single market sector or theme. 5. The direction of interest rates and the monetary policy “wildcard” Ø  There’s tension between AI hyperscalers’ large funding needs (debt/equity issuance) and the risk that central banks could drain market liquidity if inflation reignites. Ø  The U.S. Federal Reserve (Fed) policy backdrop is uncertain, with bond markets potentially pricing in rate outcomes that may not match incoming economic data. Ø  Rising long-end yields are important in the context of bond market supply/demand dynamics, with investor attention shifting toward private/AI-linked issues. 6. Fixed income: Yields are more attractive, but patience and positioning matter Ø  Many bond yields have drifted higher amid inflationary concerns, but investors often wait too long to rebuild their fixed-income portfolio exposures. Ø  In credit markets, even with spreads tight, the absolute yield levels have become more attractive, but there could be bouts of rate-driven volatility. Actionable takeaways for Canadian investors ·       Be alert to potential investment opportunities. Even if economic growth is choppy, corporate earnings and market leadership can still support risk assets. ·       Diversify by business exposure, not just geography. In today’s markets, global diversification can still leave your portfolio overconcentrated in the AI supply chain. ·       Participate in the AI theme, but manage concentration risk. Maintain AI exposure while being realistic about equity valuations, capex sensitivity, and other factors. ·       With yields having risen, revisit the portfolio role of bonds. In particular, using high-quality fixed-income assets more intentionally may be beneficial. ·       Use credit selectively for income. Even with spreads tight, consider allocations to higher-yielding credit market sectors, but stay mindful of the risks. ·  Links & Resources Listen to the episode: Investments Unplugged Podcast Learn more about Manulife Investments: Manulife IM Canada Share & Subscribe If you enjoyed this episode, please share it with your network and subscribe for future insights on markets, investing, and portfolio strategy.