Lexicon Financial Group Weekly Update — September 16, 2026
“The beauty of diversification is it’s about as close as you can get to a free lunch in investing.”
ISSUE 245
Looking Around
One of the golden threads that ties all of our weekly updates together – we’ve been writing them for over five years – is the importance of maintaining a diversified portfolio.
It’s worth talking about again, especially today when there are conflicts raging in parts of the world, inflation rising due to tariffs and disruption to oil and gas supplies.
Diversification is essentially a way to manage the overall risk in a portfolio. In its simplest form, it’s a way to avoid putting all of your eggs in a single basket. From an investing perspective, it’s ensuring that your investments are spread out across different asset types, sectors, and regions so that investment returns are not tied to any single investment or sector.
During the 2008 financial crisis (aka the Great Recession), investors with portfolios nearly entirely composed of housing-adjacent stocks (banks, mortgage companies) suffered huge losses when the housing market in the United States (U.S.) collapsed. Investors who had more diversified portfolios also experienced losses, but they weren’t nearly as large. And, more importantly, they didn’t take as long to bounce back. Diversification has proved to not only reduce risk but also smooth out volatility. (1)
The recent boom in artificial intelligence (AI) is a good example. Although the boom can be traced back to the launch of ChatGPT 3.5 in November 2022, it wasn’t until May 24, 2023, when Nvidia announced an earnings surge, that the AI-related stocks began to outperform. This was driven by massive AI demand that does not appear to be slowing down. Consequently, technology stocks have been major drivers of recent stock market returns. What began with semiconductor stocks three years ago has swept up hardware and other technology infrastructure names. Along the way, industrials and utilities have joined in with huge rallies. (2)
However, it is becoming clear that the AI boom is running out of readily available sources of capital and is increasingly financed by debt. Goldman Sachs estimates that U$489 billion of AI-related debt has been issued already this year. On top of this, major AI companies are about to turn to the public for cash, with both OpenAI and Anthropic looking at potentially trillion-dollar initial public offerings (IPOs) in the near future. Unlike investor capital, which can be lost as part of the cost of doing business, debt financing has to be paid back. This brings us back to the widespread debt defaults that caused the 2008 recession and the value of diversifying your investment portfolio. (3)
This doesn’t mean that the AI-led stock rally is over. It means that the investment landscape is always changing. Diversification cannot be “set it and forget it,” which is why we make periodic adjustments throughout the course of the year to ensure that we’re not accidentally over-investing in any specific sector.
This means that, periodically, we need to “rebalance” a portfolio. Sometimes that means selling assets that have performed well and taking profits and reinvesting them in more conservative investments to restore the portfolio to what was agreed upon in a written Statement of Investment Policy. Other times it might mean selling one asset class or category in favour of another. Whenever we make structural changes, we write about them and send them to clients as a Strategic Portfolio Update.
Portfolio rebalancing is the mechanism that helps ensure that a portfolio remains properly diversified. Without it, a portfolio that was established five years ago would have missed out on the technology boom because it wasn’t properly positioned. To be fair, 18 years (from 2008 to 2026) is a long time in the investing world. The “all in” real estate investor of that time would certainly have recovered, but their total returns would be less than an investor who remained properly diversified over the same period of time.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Canadian investors cash out of U.S. stocks in July
Can the S&P 500 Rally as Treasury Yields Rise?
European bonds head for worst weekly selloff since March as energy prices soar
Bank of America sees yen jumping 6% by end of 2026
China to pump $54bn into state banks and insurers to boost economy
Looking Back
The S&P/TSX Composite Index (TSX) ended up 0.5 per cent up last Friday, after hitting its lowest closing level in nearly six weeks on Thursday. According to Douglas Porter, chief economist at BMO Capital Markets, this small relief rally reflected a modest late-week pullback in oil prices and may also have partly reflected the view that, with the U.S. Federal Reserve (Fed) now most likely to start tightening again, the medium-term outlook for inflation may be less fraught. For the week, the TSX was down 2.2 per cent, which is its fourth straight weekly decline and the steepest since March this year. (4)
Major U.S. stock indexes finished last week lower, as escalating conflict in the Middle East drove oil prices sharply higher and fueled inflation concerns. This put upward pressure on Treasury yields, which increased alongside oil prices during last week, with the yield on the benchmark 10-year Treasury note rising to about 4.97 per cent and the policy-sensitive two-year Treasury note yield climbing over 4.63 per cent. Investor response to inflation concerns, shifting monetary policy expectations, heavy Treasury issuance, a smaller-than-expected buyback operation, and firm inflation data all appeared to put upward pressure on yields. Last Friday’s consumer price index (CPI) report provided another signal of persistent inflation, heading into the Fed’s upcoming September meeting.
In Europe, the pan-European STOXX Europe 600 Index ended down 1.66 per cent last week. European equities came under pressure as escalating U.S.-Iran tensions and disruption in the Strait of Hormuz drove oil and European natural gas prices sharply higher, which stoked inflation concerns and pushed government bond yields up. Other major European stock markets also closed lower last week. As widely expected, the European Central Bank (ECB) raised interest rates by 25 basis points, taking its key rate to 2.5 per cent. The ECB also raised its inflation projections, which supported expectations that monetary policy may need to remain restrictive for longer.
Japan’s stock markets fell last week as a stronger yen and growing expectations for near-term Bank of Japan (BoJ) tightening weighed on exporters and highly valued growth stocks. Higher oil prices added to concerns about import costs and inflation. Although AI and semiconductor-related shares showed some strength midweek, renewed geopolitical tensions and higher bond yields kept the broader market under pressure.
China’s stock markets also declined last week. Last Friday’s broad regional sell-off deepened weekly losses, as Brent crude remained elevated after moving above USD 100 per barrel midweek, while higher U.S. Treasury yields added to pressure on risk appetite.
China’s exports continue to be a growth engine despite domestic momentum staying uneven. China’s exports rose 25.0 per cent year over year in August, accelerating from 23.9 per cent in July, supported by strong shipments of technology products amid the global AI infrastructure build-out. Imports increased by 28.2 per cent, up from 27.5 per cent in July but below market expectations. That put China’s trade surplus at USD 119.1 billion, widening from USD 112.5 billion in July. Domestic passenger-car retail sales fell 24 per cent year over year, underscoring the uneven backdrop for household demand. Inflation also picked up, which was largely driven by energy and upstream price pressures rather than a broad strengthening in domestic demand. Consumer price inflation rose to 0.8 per cent year over year from 0.5 per cent. (5)
What Is Diversification? Investment Risk Strategy, Editors, Wealthsimple, September 15, 2026
3 Years of the AI Stock Market Boom in Charts, Tom Lauricella and Rachel Schlueter, Morningstar, May 22, 2026
Red flags are mounting for an AI crash. Here's why your KiwiSaver could be at risk, Finn Hogan, Money Stuff, July 23, 2026
TSX pares weekly decline as tech shares rally, Fergal Smith, Reuters, September 11, 2026
ECB raises rates amid expectations for persistent inflation pressures, T. Rowe Price, September 2026
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
SUBSCRIBE
If you’d like to automatically receive the Weekly Market Update by email, enter your email address in the box below.
We respect your privacy, and you can always remove yourself from the mailing at any time.
Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Why diversification is important for investing
The 2008 Financial Crisis Explained
AI might be the one reason we're not in a recession, top economist David Rosenberg says
