Market Overview
The fourth quarter of 2025 capped off a strong year for risk assets and diversified portfolios. Equity markets extended their gains into year-end, supported by resilient economic activity, cooling inflation, and growing confidence that the most aggressive phase of central bank tightening is behind us. While markets still experienced short bursts of volatility, the overall tone improved as investors focused on the underlying fundamentals: steady consumer demand, durable corporate earnings, and a macro environment that is gradually becoming more supportive.
Q4 also reinforced three important investment lessons. First, earnings matter. Markets can look through near-term noise when companies deliver revenue growth and margin discipline. Second, diversification matters even more after strong stretches. Concentration remains a feature of many indices, meaning portfolio design—not just market exposure—plays a larger role in outcomes. Third, fixed income is beginning to regain its traditional purpose. While bonds can still be volatile quarter to quarter, higher starting yields and more stable rate expectations have improved the long-term setup.
This commentary reviews key market narratives across Canada, the U.S., and international markets; summarizes fixed-income conditions; and provides a detailed look at fund and model portfolio results through December 31, 2025. We close with a balanced 2026 outlook—highlighting the factors that could support markets, as well as the risks we believe are most important to monitor.
Our team achieved a significant milestone in 2025 by restructuring our investment pools into 4 distinct objectives. The results of each pool for the remainder of the year were very much in line with expectations. Furthermore, the restructuring allowed us to focus on greater dispersion of models and their results, allowing us to customize our client portfolios far more effectively.
Raintree YTD Model Returns (as of Dec 31, 2025) from April 1
Canadian Equity Market
Canada’s economic backdrop in Q4 was defined by stabilization rather than acceleration. Inflation remained within the Bank of Canada’s target range, helping reduce pressure on interest-sensitive parts of the economy. Housing activity and consumer spending were uneven, but markets increasingly looked beyond the slow patches and toward the path of policy rates and the global growth outlook.
Canadian equities finished the year strongly. Through Q4 (quarter-to-date through December 31), Canadian equities (XIC) gained 6.19%, supported by strength in materials and selective opportunities across smaller companies. Commodity-sensitive areas continued to benefit from firm pricing in precious metals, while parts of the Canadian market that had lagged earlier in the cycle showed renewed investor interest. This improving breadth is an important development: markets tend to be healthier when returns are supported by multiple sectors and company sizes, rather than concentrated in only a few large names.
Overall, Canada was resilient, despite the backdrop of geopolitical uncertainty.
US Equity Markets
U.S. equities extended their gains into year-end, supported by a “soft landing” narrative: economic growth moderated but remained positive, inflation continued to ease, and the labour market stayed supportive. Consumer activity remained a key pillar—households adapted to higher interest rates better than many expected, helped by wage growth and steady employment.
Earnings were again a primary driver. Many companies delivered solid results, and expectations for 2026 remain constructive. That said, U.S. equity valuations—especially among large-cap stocks—remain elevated. High starting valuations can lead to greater sensitivity to negative surprises (whether from earnings, rates, or geopolitical shocks). This is why diversification and disciplined rebalancing become increasingly important after strong market runs.
Another ongoing theme has been concentration: a small group of large technology-oriented companies has accounted for a very large share of index returns in recent years. While these businesses have strong fundamentals, markets tend to be healthier when leadership is broad. Encouragingly, we saw signs of rotation toward smaller companies and non-mega-cap segments at points in 2025—an area we continue to position our portfolios to benefit from.
International Developed & Emerging Markets
International equities provided diversification and, in many cases, improved performance relative to recent years. Europe continued to face slower growth and policy uncertainty, but inflation trends improved, and central bank policy became more supportive. Japan remained a bright spot, aided by improving corporate governance, rising wages, and a competitive currency environment for exporters.
Emerging markets also contributed positively, supported by more attractive valuations and the prospect of easing monetary conditions in several countries. In China, policy support and incremental improvements in sentiment helped stabilize parts of the equity market, though structural challenges remain. India continued to stand out with strong domestic demand and better-contained inflation, offering a differentiated growth profile versus many developed markets.
From a client portfolio perspective, international and emerging market exposure can help reduce concentration risk and broaden the sources of return. These regions may not move in lockstep with North American markets, and they can perform well in environments where U.S. leadership narrows or valuations become more limiting. We remain slightly overweight in global markets in our geographic asset allocation.
Fixed Income Market Summary
Fixed income markets were steadier in Q4, with income once again becoming a meaningful contributor to total return. Bond yields moved within a more defined range as investors balanced two competing forces: the prospect of future rate cuts versus the reality of significant government borrowing needs. In Canada, broad bond benchmarks were slightly negative for the quarter (XBB -0.39% QTD), reminding investors that bonds can still experience short-term volatility.
Credit markets (investment-grade corporates and higher-yielding segments) continued to benefit from solid fundamentals and supportive investor demand. Notably, credit spreads are at near-all-time tight levels. When economic growth is stable and defaults remain contained, credit tends to provide an attractive blend of yield and diversification. As always, we remain disciplined in balancing yield opportunities with downside protection.
Looking ahead, the investment case for fixed income has improved materially compared to the ultra-low-rate era. With yields higher than in prior years and central banks closer to the end of the tightening cycle, bonds are better positioned to play their traditional role: generating income, dampening volatility, and providing flexibility to rebalance during periods of market stress.
Raintree Fund Performance
Raintree’s Funds delivered positive results across the board in Q4, with the Core Equity Fund leading performance in line with equity markets. Enhanced Yield and Alternative Strategies continued to deliver consistent outcomes aligned with their mandates, while Core Fixed Income provided stability and income.
While short-term returns can fluctuate, the purpose of each Fund is distinct—core growth, capital preservation, enhanced income, and diversification—and they are designed to work together within client portfolios. Performance is shown below through December 31, 2025.
Raintree Funds – Returns (as of Dec 31, 2025)
Reference Indices – Returns (as of Dec 31, 2025)
Key Takeaways:
- Core Equity returned 3.48% in Q4 and 21.53% year-to-date.
- Enhanced Yield and Alternative Strategies continued to provide steady, diversified return streams.
- Core Fixed Income delivered modest gains in Q4 as income offset rate volatility.
- US Dollar exposure was a significant headwind in December.
Model Performance
Model portfolio performance was positive across most mandates in Q4, with higher-equity models delivering stronger results. Throughout the quarter, Flex+, Explore+, and Core+ models generally outperformed their benchmarks across many profiles, especially when equity exposure was higher. The Income+ sleeve delivered steady results consistent with its objective of capital preservation and income generation.
We include detailed performance below for Month-to-Date (December), Quarter-to-Date (Q4), and Year-to-Date results. Please note the benchmark/model start dates shown in the tables.
Visual: Q4 performance by Risk Tier (Flex+, Explore+, Core+, Income+)
Visual: YTD Performance by Risk Tier (Flex+, Explore+, Core+, Income+)
2026 Outlook: Balancing Opportunity and Risk
The investment landscape for 2026 presents a mix of supportive tailwinds and meaningful risks. On the constructive side, ongoing government spending and multi-year industrial and infrastructure investment programs can continue to support economic activity. Earnings expectations remain positive, and a gradual shift by central banks toward easing policy could provide a more favourable backdrop for both equities and fixed income. In addition, valuation dispersion across the market may create opportunities—particularly in small- and mid-cap stocks, which have often traded at a notable discount to large-cap peers.
At the same time, 2026 is unlikely to be a “straight line” market. Large-cap valuations remain elevated, market concentration is still high, and the AI theme—while transformational—can create periods of exuberance and sharp sentiment shifts. Geopolitical tensions remain an unpredictable risk, and the bond market is increasingly attentive to government deficits and debt issuance, which can pressure yields higher.
A further risk to monitor is the longer-term debate around currency debasement. In plain terms, when governments run persistently large deficits and debt levels rise, there can be political pressure to keep borrowing costs low—even if inflation remains above target. If that pressure keeps rates too low relative to inflation, the purchasing power of money can erode over time. This is not a forecast of crisis, but it is a reason to remain disciplined: diversify sources of return, emphasize real assets where appropriate, and avoid over-reliance on any single market leadership theme.
Ultimately, we see a number of cross-currents in the financial markets that need to be accounted for in asset allocation in 2026. We have defined some of these below. There are plenty of reasons to be optimistic, and others to be cautious. We continue to actively manage our investment pools to accounts for many of these themes.
Illustration: Summary of Key Bull and Bear Themes Discussed in our 2026 Outlook
Final Thoughts
2025 was a strong year for many portfolios, but it also reinforced an important principle: diversification matters, particularly after extended periods of market strength. Our approach remains focused on balancing participation in upside opportunities with risk management and resilient portfolio construction.
If you have any questions about this commentary or your portfolio, please don’t hesitate to contact your advisor or our team. We’re here to help, and we appreciate your trust in Raintree Wealth Management.
