The summer of 2026 ended better than it began. After a turbulent July, most equity markets rebounded in August, extending a rally that has left Canadian bonds and cash looking increasingly like also-rans. Against that backdrop, National Bank Investments' CIO Office — led by Chief Investment Officer Martin Lefebvre, alongside Louis Lajoie and Mikhael Deutsch-Heng — has published its September 2026 Asset Allocation Strategy1, a candid and methodical accounting of what is working, what is wobbling, and what warrants a steady hand on positioning.
The bull case is not hard to construct. U.S. real GDP is expanding at close to 3%, corporate profits are at record highs with S&P 500 forward earnings up nearly 38% year over year, wage growth sits comfortably within the Federal Reserve's comfort zone, and inflation has delivered "relatively few negative surprises lately." Markets, it would seem, have little reason to fret.
And yet, Lefebvre and the team are not resting easy. Their framework zeroes in on three distinct sources of risk: artificial intelligence, debt, and war. Each deserves more than a passing glance.
The AI Investment Cycle: Rational, Not Reckless
Despite summer pullbacks in several AI-related names, the fundamental picture remains sound. Revenue growth for both AI suppliers and hyperscalers continues to climb, capital expenditure plans are being revised higher, and profit margins remain exceptionally elevated — reflecting, in the team's view, a persistent supply-demand imbalance. Lefebvre notes directly that "the latest earnings season proved rather reassuring from a fundamental standpoint."
There are caveats. A meaningful portion of hyperscaler margin expansion has come not from core operations but from unrealized gains on investments in private companies such as OpenAI and Anthropic. That distinction matters. But valuations appear to reflect it: the forward P/E for AI suppliers is at a three-year low, and for hyperscalers, a decade-low. As the team puts it, "markets do not appear to be under any illusions" about the sustainability of these figures. And for those inclined toward worst-case scenarios, the team offers a useful corrective: these companies carry credit ratings that rival — and in at least one case surpass — the U.S. government itself.
Debt: A Risk Premium Problem, Not a Crisis
The debt discussion is where the report's intellectual honesty is most on display. Yes, 30-year U.S. Treasury yields briefly hit their highest level since 2007 in mid-August. Yes, the federal budget deficit remains around 6% of GDP, with debt servicing costs at historically unprecedented levels. But total economy-wide U.S. debt — government, households, and businesses combined — sits near a 20-year low as a share of GDP.
The team's conclusion is pointed: "The most likely consequence is not necessarily a U.S. sovereign debt crisis... but rather a continued rise in the risk premium investors demand to hold U.S. Treasuries." That term premium has already reached a 12-year high and accounts for essentially the entire increase in 10-year yields since the November 2024 election. Bond markets, the team suggests, are not panicking about solvency — they are demanding compensation for uncertainty, and the White House's improvisational policy style is not helping.
Wars: Trade, Energy, and the Midterm Clock
The conflict landscape is legitimately complex. U.S. strategic petroleum reserves have hit a record low, approaching critical statutory and practical thresholds. Ukrainian strikes on Russian refining infrastructure are pushing refined product prices sharply higher. And the Canada-U.S. trade war, despite 16 tariff announcements, has produced a Canadian dollar trading roughly where it stood before the 2024 election, while Canadian equities have outperformed U.S. equities by 12% over the same period.
The team makes a pointed observation about trade risk: U.S. goods inflation is closely tied to key commodity imports from Canada, and policies that ignore that link carry a political price. With midterm elections two months away, the probability of Republicans retaining full control of Congress has fallen to under 16%. The room to escalate, the team notes with characteristic directness, "is not getting any wider."
The Bottom Line
Positioning remains tilted toward an overweight in equities relative to bonds. But the team flags the possibility of trimming that overweight as the risk-reward picture evolves — particularly through what is historically a choppy September-to-October window in midterm election years.
Five Key Takeaways for Advisors and Investors
- The bull market's foundation remains intact, but risks are real and deserve active attention rather than complacency.
- AI fundamentals are solid; current valuations suggest the market is pricing growth rationally, not euphorically.
- The U.S. debt concern is about rising risk premium and policy credibility, not imminent sovereign default.
- Canadian assets have shown remarkable resilience through sustained trade tensions — diversification across borders continues to earn its place.
- The September-October window, historically weak in midterm years, warrants a readiness to reduce equity overweight if conditions deteriorate.
Footnote:
1 Lefebvre, Martin, Louis Lajoie, and Mikhael Deutsch-Heng. "Three Reasons to Worry — Or Not? Asset Allocation Strategy." CIO Office, National Bank Investments, 1 Sept. 2026, https://www.nbinvestments.ca/content/dam/bni/publication/cio-asset-sllocation-strategy-2026-09.pdf.
