Who’s Got Your Back?

Traditional portfolio backstops have become conditional, so investors should build more explicit protection rather than rely on historical correlations.

• The Middle East conflict has constrained oil supply, and a return toward US$80 per barrel is Desjardins’ base case; lower oil would let the Bank of Canada and Federal Reserve remain on hold for the rest of 2026, while persistently high prices could force further hikes.
• Long-term yields are being driven more by real yields, heavy government and corporate issuance, and reduced central-bank purchases than by monetary policy; higher yields improve bond income but do not restore bonds’ former insurance value.
• Desjardins’ comparison of sovereign bond returns during the bottom 20% of equity drawdowns shows that the pre-pandemic positive hedging relationship weakened considerably across Canada, Germany, Japan, the United Kingdom and the United States during 2020-2026.
• The US dollar remains a conditional safe haven because its performance depends on the shock’s source, while a narrowing Canada-US policy-rate gap could support the Canadian dollar if energy prices normalize and trade tensions do not escalate.
• US equity dispersion is unusually high: the gap between the best- and worst-performing S&P 500 companies is at a 16-year high, while earnings growth is expected to exceed 30%; Canadian equities offer diversification through energy, materials and financials, and Canadian equity funds have attracted stronger inflows than other regions.

Takeaway: Desjardins remains constructive on equities and sees better income opportunities in bonds, but recommends a selective approach because oil, real yields, weaker earnings, disappointing AI returns or regulatory pressure could make major stocks fall together and raise index volatility.