Hello and welcome.
My name is Benoit Poliquin. I’m the founder of Exponent Investment Management and one of
the portfolio managers. You’re watching our first quarter review for 2026.
Market Performance Overview
Let’s start with performance.
It was an interesting quarter, with plenty of geopolitical headlines. Despite that, the Canadian
market performed very well—largely driven by rising oil prices.
From a broader perspective, both one-year and three-year annualized returns remain well
above long-term averages, which typically sit around 7–9%.
In the U.S.:
- The NASDAQ declined ~7% for the quarter
- The S&P 500 declined ~3%, despite being heavily weighted (~40%) toward technology
Interestingly, tech struggled even though it’s less directly impacted by oil-related geopolitical
events.
Elsewhere:
- European markets were positive, showing strong recovery compared to last year
- Emerging markets (roughly 50% China) posted a modest +1.6%
- The U.S. dollar remained mostly flat vs. the Canadian dollar
Bonds, Oil, and Interest Rates
- Bonds have been largely flat over the past three years
- Rising interest rates have offset coupon income, leading to ~7% total return decline
over the past year - Oil surged ~80% this quarter
- Gold remained relatively flat, but strong longer-term
Current Canadian rates:
- ~3.5% (10-year)
- ~3% (5-year)
- ~2.6% (1-year)
GICs typically yield about 1% higher than government bonds:
- ~3.6% (1-year)
- ~4% (5-year)
What Actually Moves Markets
A key point: markets don’t react to headlines—they react to fundamentals.
Investors care about:
- Earnings growth (and expectations)
- Interest rates (and where they’re headed)
Geopolitical events may cause short-term volatility, but they rarely drive long-term market
direction.
Valuation: The Core Concept
At the core of investing is discounted cash flow (DCF):
- Future profits are estimated
- Then discounted back to present value using interest rates
So:
- Lower rates → higher valuations
- Higher rates → lower valuations
Examples:
- 2022: Rates spiked → markets fell
- 2020 (COVID): Profits collapsed faster than rates → markets fell
Right now:
- Profits are rising
- Rates are stable
That’s why markets have held up relatively well.
Market Behavior & Volatility (VIX)
Markets tend to turn when news gets “less bad”, not when everything is resolved.
The VIX (volatility index)—often called the “anxiety index”—rose from ~18–19 to over 30 in
March, signaling increased fear.
Since then, it has declined, indicating improving sentiment.
Earnings Expectations
Changes in earnings expectations drive price movement:
- Tech growth expectations increased significantly (from ~34% to ~45%)
- Energy expectations improved to ~9%
- Some sectors (e.g., consumer staples, healthcare) saw declining expectations
Again, it all comes back to:
Earnings + interest rates = market direction
AI: Our Perspective
We’ve received many questions about AI.
Two important concepts help frame our view:
1. Creative Destruction
- Innovation emerges
- Capital floods in
- Overinvestment occurs
- Weak players exit
- New winners emerge
Example: Early auto industry went from 200+ companies to a handful
2. Jevons Paradox
- As technology becomes cheaper
- More efficient
- Usage increases, not decreases
Example: Cheaper AI-driven medical scans → more scans, not fewer → continued demand for
professionals
Our AI Strategy
- We do not let AI drive decisions
- We incorporate it as a factor
- Focus on:
- Strong businesses
- Cash flow
- Balance sheets
- Prefer “tollkeeper” companies (indirect beneficiaries)
We also see overreactions in some sectors—creating buying opportunities.
Key Takeaways
- Markets remained resilient despite headlines
- Earnings and interest rates matter most
- AI is important—but not a primary driver of decisions
- Strategy remains consistent, with slight evolution
Firm Updates
- Expanded estate planning capabilities, led by John Vashon
- Increased support for:
- Tax efficiency
- Insurance review
- Philanthropic planning
We’re also investing in the next generation of leadership, including:
- Gabrielle
- Daryl
- Mitch Kadir (CFA, Associate Portfolio Manager)
