Ask The Experts - February 2026
Answers are provided by 5i Research.ca
Q: I believe U.S markets entered a corrective phase last April. Do you think we are entering one now? How often do they normally occur during a year?
A: There is not really a 'schedule' to corrections. Right now, we would view this as more sector-rotation than a correction, as some sectors are seeing money flows. Year-end can be an unusual time for trading, and this year this combines with renewed AI fears to see a lot of stocks taking big hits. But we were close to new all-time highs less than two weeks ago, and some consolidation was due. Investors seem very fearful despite forecasted earnings growth, which leads us to believe this decline will not turn into something worse. But, no one can really predict these things. Psychology can take markets further than fundamentals, but only in the short term. We have not yet seen a big spike in the volatility index (VIX) that usually accompanies major corrections.
Q: I realize that CAD/USD exchange rate is historically very hard to predict, but most pundits are calling for US dollar weakness in 2026. About 60% of my portfolio is in US dollar denominated assets. Should I reduce that exposure?
A: The U.S. dollar could be weak internationally, but that does not always mean the Canadian dollar will be strong. We fail to see how the Canadian dollar can repeat its strong 2025 performance, considering U.S. growth is 4.3% and Canada is barely scraping above 0% growth. We can't get personal, but we would still guess (and that is largely what it is) that the Canadian dollar will not be much higher at year end 2026. 60% is a lot of currency exposure, of course. We might be more comfortable at 45% or 50% just as a caution.
Q: I would consider myself a long-term investor tilted toward growth. For such an investor, what is your overall opinion of selling covered calls on long positions. I have dabbled in the past, but in the end, I find that I do not enjoy the potential risk of giving away opportunities for growth just for the sake of earning some cash. It seems to me to be a short-term gain, but a potential long-term loss. Your thoughts on my perspective?
A: We would agree. While there are benefits (enhanced income, capital gains treatment on options premium, the ability to manage taxes and positions--by closing contracts when needed), in general if one is truly a mid-to-long-term investor one is usually better off not selling calls. In a 'flat' market they can work well, but then this of course requires a market prediction. In a 'down' market they can cushion declines (a bit) but this also requires a prediction. The need for income is of course also a factor, and many investors are fine trading future gains for current income. We dabble in them from time to time, but far less than we used to.