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Both the Bank of Canada and the U.S. Federal Reserve Board made decisions on interest rates back in March. Both remained on hold, given the uncertainty over the price of oil and gas due to the U.S./Israeli conflict with Iran and the closure of the Strait of Hormuz by Iran.
The Canadian and U.S. economies are both showing signs of weakness, with Canada losing over 80,000 jobs in February and unemployment rising to 6.7%. The U.S. added almost no new jobs in January and February.
In this context, any increase in inflation due to higher energy costs will be regarded as transitory by central bankers. As it is, Canadian inflation fell to 1.8% on an annual basis to the end of February, admittedly before any impact from the sharp rise in oil prices due to the Iran conflict.
Of course, this was the argument central bankers used in 2021-22, as Covid-related disruptions were used as arguments to avoid raising interest rates. As a result, inflation shot up to 8%, and interest rates had to be jacked up to over 5% from 0.25% in less than a year. The stock markets were badly affected, with the S&P/TSX 60 falling 15% in 2022, the S&P 500 down 20%, and the tech-dominated Nasdaq Composite sliding 30% as investors repriced future earnings using a much higher interest rate.
This time, it does seem as though any rise in inflation due to higher energy costs genuinely will be short-term. This assumes that the conflict in Iran will be resolved within the next few weeks and that oil and LNG shipments through the Strait of Hormuz recover to somewhere close to the 20 million barrels a day level seen before hostilities broke out.
While equity markets were worried by the abrupt leap in the price of a barrel of oil from under US$60 a barrel to over US$100 a barrel within a week, the 60% increase was actually less than occurred at the start of the Ukraine invasion, let alone the price surges after the Yom Kippur war in late 1973 and the overthrow of the Shah of Iran in early 1979.
Economies are much less oil-dependent than they were 50 years ago, and, importantly, the U.S. has gone from being a major oil importer, at the mercy of supply disruptions from the Middle East, to being the largest oil producer in the world and a major exporter, especially of LNG. The removal of former Venezuelan President Nicolas Maduro has potentially released supplies of oil from Venezuela, which has the largest reserves in the world, for US use.
The Liberal government of Mark Carney has announced it intends to expand Canada's export capacity by accelerating new pipelines and LNG terminals, including adding to the Trans Mountain Expansion pipeline and the Prince Rupert LNG plant, which opened recently.
Even European countries formerly committed to transitioning to “green” renewable sources of energy have begun expanding LNG import facilities and building nuclear plants to reduce their dependence on traditional sources of energy such as Russian pipelines and exports from the Persian Gulf.
The countries most affected by the rise in the oil price have been large emerging economies such as China and India, which import a high percentage of their energy needs. The price rise has also hit developed north Asian economies like South Korea and Japan, which also are heavily import-dependent. However, Japan has restarted the Fukushima nuclear complex, and Korea has been amongst the leaders in developing its nuclear capacity.
As a consequence, investors have been taking profits in these countries after their very strong performance in 2025, and their currencies have also weakened. Emerging nations’ central banks were much more decisive than the developed economies in raising interest rates in 2021-22 to combat inflation and have retained some of the credibility they gained by their response then. Their equity performance over the last year is still ahead of the U.S. market. The iShares Emerging Markets ETF (NYSE: EEM) is up 31% over the last 12 months (to the end of March), against 25% for Nasdaq and 19% for the S&P 500. iShares Europe ETF (NYSE: IEV) is up 14%.
Canada’s resource-exposed S&P/TSX 60 is also doing well, up 29% over the last year, while the iShares S&P/TSX Energy ETF (TSX: XEG) is up 54% and the iShares Global Gold ETF (TSX: XGD) has gained 110%.
The interest-rate-sensitive sectors tracked by ETFs like the iShares S&P/TSX Capped Financials Index ETF (TSX: XFN) and the iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT) are up 32% and 25%, respectively. This is due in large part to Canadian interest rates falling by over 2.5 percentage points, to 2.25% and U.S. rates dropping by 1.5 percentage points, to 4%.
iShares S&P/TSX Capped Financials Index ETF is up 32% in the 12 months to the end of March, indicating strength among Canada’s big banks. Here’s a look at the fastest-growing bank, Canada’s sixth largest, which continues to go from strength to strength.
National Bank of Canada (TSX: NA) is the sixth-largest Canadian chartered bank and has been amongst the best performing of Canada’s big banks, with share price doubling over the last five years and up 56% over the last year to the middle of March. Having grown by taking over Canadian Western Bank (CWB), the eighth-largest bank in Canada, for $5 billion, it subsequently bought the retail business of Quebec-based Laurentian Bank with its $10.9 billion in assets and $1.4 billion in small- and medium-sized enterprise loans.
National Bank reported a jump in first-quarter earnings, to $1.25 billion ($3.08 per share), up 25% from $997 million ($2.78 per share). Adjusted to exclude certain items, including those related to the takeover of CWB, earnings per share were $3.25. Total revenue rose 22%, to $3.89 billion; however, expenses also rose 22%, to $2.01 billion, which was driven by the CWB takeover and higher variable compensation.
Provisions for credit losses (PCLs) were actually down slightly, to $244 million from $254 million, reflecting more confidence over the effect of U.S. tariffs. Profits from Canadian commercial and personal banking rose 47%, to $427 million, due to the integration of CWB. Wealth management profit rose 12%, to $272 million, and capital markets rose 6%, to $443 million.
CEO Laurent Ferreira noted, “We are executing our financial objectives with discipline, driving organic growth and operational efficiency as we reinforce our pan Canadian reach.”
National Bank raised its quarterly dividend by 5%, to $1.24 per share, late last year, equivalent to a yield of 2.8%. The bank is also increasing its share repurchase plan to 14.5 million shares from 8 million.
National Bank has been the second-best performing of the Big Six chartered banks after CIBC, reflecting its exposure to the strongly performing Quebec economy and the successful takeover of CWB. It would be suitable for conservative investors looking for steady growth through acquisition, conservative credit management, and the growth in its asset management business. Consult your financial advisor before investing to ensure the stock aligns with your risk tolerance and your financial objectives.
Gavin Graham is a veteran financial analyst, money manager, formerly Chief Investment Officer of BMO Financial, and a specialist in international investing, with over 35 years’ experience in global investment management. He is currently Chief Investment Officer of Calgary-based Spire Wealth Management.
Notes and Disclaimer
Content copyright © 2026 by Gavin Graham. This is an edited version of an article that first appeared in The Income Investor newsletter. Used with permission.
The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.
The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
Image: iStock.com/master1305
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