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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and sponsored by Canada Life. For today’s Soundbites, we’re reviewing Q1 of 2026 with Corrado Tiralongo, chief investment officer with Canada Life. We talked about equities, fixed income and global disruptions. And we started by asking about how he’d characterize the first three months of 2026.

Corrado Tiralongo (CT): I would frame the first quarter as a continuation — but also an acceleration — of a shift that’s been building for a while. We’re moving away from a world where markets are primarily driven by demand cycles and central bank timing, toward one where supply shocks, geopolitics and structural constraints are playing a much bigger role. The war in the Middle East has moved geopolitics from the background to the foreground. Energy, supply chains, semiconductors and defence spending are now central to market outcomes. That has led to a different kind of market behaviour, with more abrupt repricing, more dispersion and a wider range of outcomes. Markets are reacting to real-world constraints, not just financial conditions. What’s working is still relatively narrow: large cap growth, AI-linked themes and strong balance sheets. What’s not working as well as it used to is the traditional diversification playbook. Bonds, for example, have been less reliable as a hedge. We’ve seen periods where yields have moved higher at the same time as equities have sold off, particularly during energy-driven inflation shocks. This reflects a combination of rising term premiums and persistent inflation uncertainty. So fixed income is still providing income and diversification over time, but not with the same consistency as a shock absorber that investors have been accustomed to in the post-financial crisis period. So, to characterize the first quarter of 2026, the surface looks relatively calm, but the underlying currents are more volatile and more concentrated.

Why oil is a central concern

CT: The key point with oil is not just the price level, it’s whether the price transmits into broader inflation, wages and financial conditions. We’ve moved from roughly US$78 per barrel of Brent to over $100. We’re seeing early signs of higher headline inflation and pressure on real incomes, but not yet a full spillover into tighter financial conditions. Oil — or energy more broadly — is just one element of inflationary pressure. What we’re likely to see is more volatility in inflation, rather than a structurally higher trend. Supply shocks tend to push inflation up quickly, but they don’t always persist unless they feed into wages and expectations. So instead of a steady inflation story, we’re moving into one where inflation comes in waves. What’s interesting is that central banks have less control than they’ve had in the past. They can manage demand, but they can’t produce more oil or fix supply chains. So, policy becomes more reactive. It’s less about fine tuning and more about anchoring expectations.

An increased focus on private credit

CT: What we’ve seen so far this year is a sharp increase in interest in private credit. It’s an area to watch, but the risk is often misunderstood. Private assets often appear less volatile, but that’s largely because they’re not marked-to-market as frequently. The risk doesn’t go away; it just becomes less visible. In stress periods, investors can’t sell those assets. So, when they need liquidity, they sell what they can, typically public equities. Are investors underestimating that risk? In some cases, yes, particularly in how it’s framed. There’s been a shift where illiquidity is seen as a feature, something that smooths returns. Historically, that was something that investors were compensated for. If it becomes something that investors are actively seeking for stability, then return expectations may need to adjust. And, more broadly, that reflects a behavioural shift. Investors are prioritizing the appearance of stability, even if the underlying risk hasn’t changed.

On market concentration

CT: One of the defining features of the current market has been equity concentration. A small number of companies have been driving a large share of the returns. What we’re starting to see, at the margin, is some broadening. International equities have shown signs of improvement, and leadership is becoming slightly less narrow than it was at the peak. But concentration remains elevated by historical standards. This is more of a partial broadening than a full rotation. And it’s not just concentration at the individual stock level; it’s also at the country level. Over the past decade, the U.S. has gone from roughly 50% of the MSCI World Index to closer to 70%. So even portfolios that appear diversified on the surface are increasingly tied to a single market. And importantly, the risk has shifted. Valuations have come down in parts of the technology sector, so the issue is less about how expensive these companies are, and more about how much future growth is already embedded in expectations. When you combine that with still concentrated positioning and a strong narrative around AI, markets become more sensitive to disappointment.

Portfolio construction

CT: Portfolio construction is always challenging, but in this environment the focus shifts from prediction to resilience. We’re dealing with a wider range of outcomes, so diversification across return drivers becomes more important. But equally important is understanding how portfolios behave when expectations are not met. In this environment, drawdowns are less likely to come from unknown risks, and more likely to come from known risks that were simply priced too optimistically.

That means:

  • Managing concentration risk within equities;
  • Using multi-factor strategies to balance exposures;
  • Incorporating liquid alternatives like managed futures and risk parity; and
  • Being more aware of liquidity dynamics.

Markets typically don’t break on surprises; they break when expectations aren’t met.

And finally, what’s the bottom line for investors as we close Q1 of 2026?

CT: We’re facing a more complex economic environment, but not necessarily a broken one. The system is more interconnected, more volatile and more influenced by supply-side dynamics, but it’s also adapting. For investors, the challenge isn’t just identifying where risks exist, it’s understanding how those risks are being priced, and how they behave if expectations change.

Well, those are today’s Soundbites, brought to you by Investment Executive and sponsored by Canada Life. Our thanks again to Corrado Tiralongo of Canada Life. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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