Our base case is for modest economic growth and inflation calm enough to allow for a resumption of interest-rate cuts. In this environment, we expect decent returns from bonds and even better performance from stocks, especially in regions outside North America where valuations are relatively appealing. Economy U.S. public policy remains the dominant macroeconomic theme, with tariffs and tax cuts both attracting close attention. The global economy has been resilient in the face of protectionism but some areas of the economy have begun to soften modestly, including the labour market. Inflation resulting from President Trump’s tariffs is becoming visible although the net effect of tariffs on inflation may be somewhat smaller than initially expected. We believe a U.S. recession remains unlikely, and our global growth forecasts are flat to slightly higher than a quarter ago. Fixed Income The Fed is on the cusp of resuming interest-rate cuts to support the labour market even as inflation remains slightly above target. The U.S. 10-year yield at 4.2% is attractive and situated above modelled equilibrium if inflation does not return with force. Our model indicates that the current real yield is about 70 basis points above normal given longer-term structural factors. We can expect 10-year Treasury bonds to deliver returns in the mid single digits over the year ahead, with minimal valuation risk, in addition to providing critical ballast against equity-market volatility in the context of a balanced portfolio. Equity Markets Global equities soared to records, extending their impressive rebound from earlier this year, with broad participation from international stocks. U.S. large-cap stocks, Canadian equities and Japanese equities are fully valued, but stocks in Europe, the UK and emerging markets appear to be attractively priced. Although valuations are elevated in the highly concentrated U.S. large-cap equity market, the ultimate driver of a sustained advance in stocks is corporate-profit growth, and earnings have been much better than expected. If profits continue to meet or even exceed analysts’ expectations, the rally could have further room to go but heightened valuations may limit the magnitude of any future gains.