The rush of strong earnings in July and August definitely captured most investors’ attention. Results were excellent, and analysts have actually increased their earnings expectations for the balance of 2026 and into 2027. That is quite rare, as estimates are usually revised downward as the year progresses. Now, we wait for October, November, and February to see what Q3 earnings bring.

In the absence of earnings, investor focus has returned to the macro environment. There is a lot to digest, much of which was largely ignored over the summer. Here is a quick summary of what we are watching:

 

The AI Narrative Is Changing

A great deal has changed in the AI ecosystem over the past few months. The narrative around AI has shifted from a vision of near-utopian promise to something far more uncertain, with some now questioning whether it poses meaningful risks to society itself. Investors are increasingly asking whether the guardrails around the most advanced models are sufficient, and whether further oversight may be required, potentially slowing development and adoption.

At the same time, investors are beginning to question the payoff for companies investing trillions into AI infrastructure. The circular financing behind much of this buildout is also starting to raise concerns.

NIMBYism is beginning to emerge around AI data centres. There is a growing belief that they drive up local electricity rates and consume massive amounts of water. Fear of AI itself is also contributing to resistance against further data centre development. As they say, all politics are local.

Why does this matter?

Because much of the market’s economic growth and momentum is concentrated in this space. Concentration, crowding, valuation, and leverage are all factors in what is currently the market’s most important sector. A sustained shift in the narrative carries substantial risk across much of the market.

War and the Energy Crisis

As the saying goes, when asked, “How did you go bankrupt?” the answer was: “Slowly at first, then all at once.” The oil market has behaved in much the same way over the summer, trading in a relatively tight range. The prevailing view had been that the war would eventually reach a standstill and that supply moving through the Strait of Hormuz would normalize. Meanwhile, the reserves that had been cushioning the supply constraint have gradually been drawn down.

Refined products such as gasoline and diesel have faced additional supply constraints because of the war in Ukraine. Add it all up, and you have elevated fuel prices that will likely persist for some time, even if the war ends, because inventories will need to be replenished.

Why does this matter?

High gasoline and diesel prices disproportionately hurt the most economically vulnerable segments of society, while also creating inflationary pressures across the broader economy through food, transport, and industrial inputs. We are already seeing weak consumer sentiment and growing political instability. In some parts of the world, unrest is beginning to emerge as transportation fuel becomes too expensive.

It is also worth noting that many recessions coincide with energy shocks.

And it is not just energy. The broader commodity complex, including metals and agriculture, is also moving higher. If these price increases persist, they will add to inflationary pressures and further strain consumers.

Interest Rates

This is a big one. Long-term interest rates have risen dramatically over the summer. At the end of June, the 10-year Treasury yield was around 4.4%. It has recently broken through the 5% barrier. Meanwhile, the U.S. government is running a deficit approaching US$2 trillion.

What is particularly notable is that inflation expectations have remained relatively stable. That means bond investors are actually demanding greater compensation simply for owning U.S. Treasuries. Despite a strong economy and full employment, the U.S. government continues to run an enormous deficit. It is understandable that bond investors are becoming more cautious about lending to the U.S. for 10 to 30 years and are demanding higher yields in return.

Why does this matter?
Treasury yields set the benchmark for bank loans, corporate borrowing, car loans, and consumer credit, so their impact permeates the entire economy. Higher borrowing costs reduce profits, can be inflationary, and often lead to weaker consumer spending. They also affect other government bond yields and currencies, and these rising rates are not just a U.S. phenomenon, they are global.

Treasury yields also serve as the risk-free discount rate used to value future cash flows. The higher the interest rate, the less valuable those future cash flows become, and therefore the lower the valuation of the asset. We have already seen significant selling pressure in interest-rate-sensitive sectors in Canada, such as real estate and utilities.
One further concern is the new Federal Reserve Chair. Chair Warsh is in a difficult position, caught between an expectant market and a President demanding lower rates.

Summary

There are a number of other issues we could discuss, midterm elections, other ongoing conflicts, and trade relations among them, but I feel the three factors outlined above are the most important at the moment.

We are watching the signals closely, despite the substantial noise, and we believe our portfolios are positioned to absorb whatever may be coming. If markets continue to rise, we are also in a position to benefit from higher valuations, although we would likely trim into that strength.

 

C.R.M.3

Something new is coming on your January 2027 statement. The new Client Relationship Model Phase 3 (CRM3) reporting requirements will expand the information shown on your client statements to include the costs associated with mutual fund managers, and ETF’s, expressed in dollar terms. 

We welcome this additional reporting and have always been upfront in acknowledging that these third-party managers charge fees over and above the TAG fees. 

Mutual funds remain an important component of client portfolios as they provide diversification and access to specialized investment strategies that can be difficult to replicate individually. The management costs associated with these funds support the expertise, research, portfolio oversight, and day-to-day management provided by experienced investment professionals. 

It is import for you to understand that we consistently test our manager selection by using a third-party due diligence supplier that compares the different managers’ returns and risks, net of fees, against a portfolio of ETF’s. We continue to monitor the managers that we feel have underperformed based on our testing.  

While CRM3 changes how these costs are disclosed, it does not introduce a new fee. If you are interested in discussing this in more detail, please let us know and we will be happy to include this topic on the agenda for your next review meeting. 

 

A Different Kind of Back-to-School Lesson

As students head back to the classroom this fall, it’s a timely reminder that some of life’s most valuable lessons are learned well beyond school walls.

This summer, our team member, Maddie Tanzola, had the opportunity to participate in a valued client’s family assembly, speaking with more than 50 third- and fourth-generation family members about investing and financial literacy. Through interactive activities and real-life examples, the session was designed to make financial concepts feel approachable, relevant, and engaging for every age.

The conversation reflected an important part of our Life Wheel™: My Family’s Education. While this often includes planning for educational opportunities and future advantages, it also includes preparing the next generation with the financial knowledge, confidence, and decision-making skills they’ll carry throughout their lives.

The objective wasn’t to teach everything in a single afternoon, but to spark curiosity and encourage thoughtful conversations around wealth, responsibility, and legacy.

As families settle back into school-year routines, it may also be the right time to think about financial education. At TAG, we believe starting the conversation early can be an important part of preparing the next generation for what lies ahead.