In Q3, market attention shifted from equities toward the bond market. Sovereign debt across Western economies experienced a sharp, synchronized sell-off as investors grew increasingly uneasy about escalating government deficits, persistent inflation, and long-term debt sustainability. Benchmark yields on U.S. Bonds, alongside European and Japanese sovereign debt, climbed to multi-decade-high levels with the 10 -Year Treasury surpassing 5% for
the first time since 2007.
In energy markets, gasoline and diesel prices continued to climb, leading to record profits for refiners and integrated energy companies. However, elevated energy prices are a double-edged sword as higher input costs are squeezing broader corporate margins and weighing in on household purchasing power.
This environment of rising interest rates and elevated energy costs put a damper on broad equity performance. Major benchmarks, including the TSX, S&P 500, and European indices, were largely flat over the quarter, while tech-focused markets such as South Korea faced pullbacks. Although the ongoing AI infrastructure rollout delivered strong headline earnings for mega-cap technology leaders, cracks are emerging beneath the surface. S&P 500 earnings were led by companies such as Alphabet and Amazon which reported growth of roughly 300% and 240%. However, most of that growth was accounting gains on holdings like Anthropic and SpaceX rather than profit from operations. Strip away those paper gains and those numbers fall to just 23% and 17% while overall S&P 500 earnings are reduced by 18%.
While the AI narrative and macro volatility are creating a lot of noise in the market, they also lay the groundwork for high-conviction, long-term opportunities. Rather than paying premium prices for speculative momentum or inflated headlines, we remain focused on deploying capital into durable, cash-generative businesses with strong balance sheets. Rising yields and valuation resets naturally filter out market exuberance, opening compelling entry points into high-quality companies anchored by structural themes like energy infrastructure, health technology, and automation. We continue to position purposefully, waiting for the right moments to acquire enduring value at a good price.
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