Yields, Tariffs, Seasonality and Flows

Canadian equities face a seasonally weaker period, but the best risk/reward is shifting from crowded large caps toward selectively adding rate-sensitive stocks and fixed income.

• September has historically been the worst month for both the TSX and the S&P, while October has brought greater dispersion before the stronger November–December period.
• Canadian equity inflows have exceeded longer-term trends, helping Canada rank first against the U.S., Asia, Europe and emerging markets over the past two years; the flows accelerated the performance gap between large and smaller TSX 60 stocks in 2026.
• The forward median P/E for the largest TSX 60 quartile rose from 13.9x in August 2025 to 15.2x in August 2026, while the smaller quartile fell from 16.8x to 14.5x; the smaller group still represents companies with market capitalizations of $8–35 billion.
• Long-term bond yields have reached levels not seen for roughly two decades, and Canadian utilities yield 3.62% versus 3.76% for the 10-year Government of Canada bond, a relationship observed on only 2.2% of trading days since 2017.
• The authors have added fixed income, doubled pipeline exposure and added industrial real estate, while warning that renewed wage inflation and persistently high yields could make the trade fail; Canadian tariff escalation could reduce GDP by an estimated 0.3%.

Takeaway: Investors should favor a modest, contrarian tilt toward fixed income and lagging rate-sensitive Canadian sectors rather than a major repositioning, while recognizing that strong inflows, elevated valuations and tariff uncertainty remain risks.