Economic Overview: Stability Tested by Global Events

The first quarter of 2026 has been shaped by heightened geopolitical tensions, most notably the ongoing conflict involving Iran, Israel, and the United States. This has introduced short-term volatility into global markets, particularly through the energy sector.

The disruption of oil supply routes, especially through the Strait of Hormuz, has led to a meaningful increase in global oil prices, with crude prices moving above $100 per barrel in recent weeks.

As a result, inflation has re-emerged as a short-term concern, driven primarily by rising energy costs. Gasoline prices alone have experienced sharp increases, contributing to broader cost pressures across transportation, goods, and services.

However, it is important to recognize that this is largely a supply-driven inflation shock, and is not based on an increase in consumer demand or a structural breakdown in the economy. Economic fundamentals across North America remain intact, with modest GDP growth and resilient labour markets continuing to support overall stability.

Stock Markets: Building Resilience in the Face of Uncertainty

Despite geopolitical tensions and energy-driven inflation concerns, some areas of the economy have showed resilience.

Historically, markets have demonstrated the ability to navigate geopolitical conflicts by focusing on long-term economic trends rather than short-term disruptions. While volatility may increase in the near term, underlying corporate earnings and innovation continue to support equity markets creating very good buying opportunities.

Large-cap U.S. equities, particularly those within the NASDAQ 100 and S&P 500, remain strong pillars of growth, supported by continued advancements in artificial intelligence, technology infrastructure, and global digitization. Recent market pullbacks have also created attractive opportunities to acquire high-quality technology companies at more favorable valuations.

Key Areas of Opportunity in 2026

1. Canadian Small Cap Growth – Metals & Resources

One of the most compelling opportunities in today’s market is within Canadian small-cap companies, particularly those focused on, Gold, Silver, Copper, Industrial Metals, and Rare Earth Minerals.

The global transition toward electrification, renewable energy, and advanced technologies has created a surge in demand for these resources.

The key drivers include increased demand for battery materials and electrification. The strategic importance of domestic supply chains to the global economy, global infrastructure and energy transition investments. Canada’s resource-rich economy positions these small cap companies for significant long-term growth, even amid broader market volatility.

2. Global Infrastructure – A Structural Growth Theme

Global infrastructure continues to be a major area of investment and opportunity.

Governments and institutions are investing heavily into, Energy systems and grid modernization. Transportation and logistics along with the Digital infrastructure and data networks presents excellent opportunities to invest.

Infrastructure investments offer stable and predictable cash flows, inflation-resistant characteristics and lower volatility compared to broader equity markets.

These assets are performing well and provide a strong foundation within diversified portfolios.

3. Dividend-Paying Investments – Stability During Volatility

With short-term inflation pressures and market uncertainty, high-quality dividend-paying investments are increasingly attractive.

These strategies provide, consistent income streams, reduced volatility during market pullbacks and long-term compounding benefits

Many established companies continue to generate strong cash flow and return capital to shareholders, offering both stability and growth potential.

Interest Rates & Inflation: Short-Term Pressure, Long-Term Balance

The recent rise in inflation is closely tied to energy prices stemming from geopolitical tensions. Oil supply disruptions have created upward pressure on inflation globally. Central banks are monitoring closely and will likely delay rate cuts in the near term. Inflation is expected to moderate as supply stabilizes.

While inflation may remain elevated in the short term, it is important to note that energydriven inflation shocks have historically been temporary in nature.

As supply chains normalize and geopolitical tensions stabilize, inflation is expected to ease, allowing central banks to gradually shift toward more accommodative policies.

Navigating Geopolitical Risk

The current conflict has understandably created concern among investors. However, history provides important perspective showing us that markets have consistently recovered from geopolitical conflicts and long-term growth has persisted through periods of war and uncertainty. The diversification into the correct economic sectors remains the most effective tool for managing risk.

We are actively positioning portfolios to benefit from growth in global equities, strength in commodities and natural resources as well as stability through infrastructure and dividend-paying investments

Final Thoughts

The first quarter of 2026 serves as a reminder that while markets may face short-term uncertainty, the long-term outlook remains strong.

Rising oil prices and inflation pressures are real but they are cyclical, not permanent.

Opportunities continue to emerge in key sectors of the economy, and disciplined investors who remain focused on long-term objectives are best positioned to succeed.

We remain confident in the resilience of the markets and committed to guiding you through both challenges and opportunities ahead.

Disclaimer

This commentary represents Westgroup Financial Management Inc.'s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, seek input from your financial advisor. You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of Westgroup Financial Management Inc.