What Do Stocks, Bonds, and Inflation Mean for your Portfolio
Commentary • Education
Date posted
Nov 2, 2026
Stocks Are Up, Bond Yields Are Climbing, and Inflation Is Stuck at 3%: What It Means for Your Portfolio
Three signals are pointing in different directions right now. Equity markets are up for the year. Bond yields have climbed to their highest levels in about three years, which means bond prices have been under pressure. Canadian inflation, at 3.0% in August, is sitting above the Bank of Canada's 2% target.
For investors, the interesting question is not whether any one of these is good or bad. It's how they fit together, and what kind of portfolio is built to handle all three.
Where Inflation Stands
Statistics Canada reported that the Consumer Price Index rose 3.0% year over year in August 2026, unchanged from July. Most of the pressure is coming from energy. Gasoline prices were up 23% from a year earlier as the conflict in the Middle East kept energy markets elevated, and excluding gasoline, consumer prices rose 2.4%. Rent also continued to trend higher, rising 2.8% year over year in August.
The underlying picture is calmer than the headline. The Bank of Canada's preferred core measures, CPI-trim and CPI-median, came in at 1.9% and 2.0%, and it's important to note that, according to economists, underlying inflation showed few signs that higher energy costs were pushing up prices more broadly. In Alberta, though, July inflation ran at 4.2%, well above the national rate.
The Bank of Canada held its policy rate at 2.25% on September 2, its seventh consecutive hold, and its next decision is scheduled for October 28, 2026. Markets have shifted toward pricing possible rate hikes, although some economists expect the Bank to hold.
What Stocks and Bonds Are Doing
Equities. The S&P 500 closed up about 11.8% for the year on October 1. Canada's TSX set a series of record closes in August and was up roughly 14.7% for the year as of August 7. In early October it was trading modestly below those highs.
Bonds. This is where the picture is less comfortable. Canada's 10-year government bond yield rose to ~4% on September 24, its highest since November 2023, and moved above 4% in early October as a global bond selloff continued. The U.S. Federal Reserve raised its overnight rate by 25 basis points on September 16, to a range of 3.75% to 4.00%, its first hike in three years. Because bond prices move in the opposite direction from yields, rising yields have been a headwind for existing bonds, even as stocks have advanced.
What That Combination Means
When inflation and interest rates rise together, the traditional cushion in a stocks-and-bonds portfolio can weaken. Morningstar's research found that rising interest rates typically lead to closer links between stocks and bonds, which reduces the diversification benefit of holding both. A portfolio built only on those two asset classes can find that both are sensitive to the same inflation and rate surprises at the same time.
That is the case for looking beyond stocks and bonds, and it is where real assets come in.
Why Real Assets Are Different
Real assets are tangible, income-producing holdings such as infrastructure, real estate, and farmland and timberland. Their cash flows and values are tied to physical assets and long-lived contracts, rather than only to corporate earnings or a bond's fixed coupon.
Research from the CFA Institute, covering the period from the third quarter of 1981 through the fourth quarter of 2024, found that real assets, including commodities, real estate and global infrastructure, have historically been especially effective diversifiers for investors concerned about inflation risk. In that research, commodities in particular showed stronger performance in periods of higher unexpected inflation.
The mechanism is easiest to see in infrastructure. Revenue from infrastructure assets is often underpinned by long-term contracts and linked to inflation, either directly through pricing tied to the consumer price index or through regulated price escalators. Brookfield's research on listed infrastructure estimated that roughly 70% of its investable universe had explicit inflation protection built in, and found that global infrastructure equities had historically outperformed the broad equity market in periods of elevated inflation.
Think of a toll road, a cell tower, or a regulated utility. Many of these are paid under long-term contracts or concessions that automatically adjust prices as inflation rises, for services people and businesses need regardless of the economic cycle.
What Real Assets Don't Do
Real assets are not a guaranteed inflation shield, and protection varies from asset to asset: Lazard's review of toll road concessions shows escalators ranging from full CPI to a fraction of CPI, and analysis on Livewire Markets notes that inflation-linked revenue can be partly offset where an asset carries inflation-linked or floating-rate debt. As covered in our earlier look at interest rates and private markets, borrowing costs and capitalization rates influence property values, so a period of rising yields can weigh on real asset valuations even when income is growing. Private real assets are also less liquid than public securities, and their valuations are updated less frequently.
How Kinsted Thinks About Real Assets
At Kinsted, real assets are one building block in portfolio construction, alongside public equities, fixed income, and other private market strategies. The reasoning is straightforward. Many real assets are supported by long-term contracts, and some of those contracts include inflation escalators, which can help income keep pace with rising prices over time. Real assets also respond to different economic drivers than stocks and bonds do, which is the point of diversification in the first place.
Kinsted's pooled, multi-manager approach is designed to avoid relying on any single asset, contract, or manager. Kinsted looks for managers who buy at valuations below intrinsic value and aim to improve cash flow over the longer term. Liquidity in this kind of structure comes from how the pool is built and managed, not from selling private assets on demand, and redemptions remain subject to defined limits and notice periods as set out in the offering documents.
This description is general and educational, is not specific to any particular Kinsted pool or product, and does not constitute an offer or solicitation to purchase any security. Any Kinsted investment products are offered solely pursuant to their applicable offering memorandum and related subscription documents, which should be reviewed carefully before investing.
Frequently Asked Questions
What is Canada's current inflation rate?
Canada's annual inflation rate was 3.0% in August 2026, unchanged from July, according to Statistics Canada. Excluding gasoline, prices rose 2.4%, and the Bank of Canada's core measures were close to 2%.
Are bonds still a good diversifier when inflation is above target?
They can still diversify a portfolio, but less reliably. Research from Morningstar has found that rising interest rates typically bring stocks and bonds closer together, reducing the diversification benefit, and rising yields push existing bond prices down.
What are real assets?
Real assets are tangible, income-producing holdings such as infrastructure, real estate, farmland, and timberland. Their value and income are tied to physical assets and, in many cases, long-term contracts.
Do real assets protect against inflation?
Historically, real assets have been effective diversifiers against inflation risk, particularly where long-term contracts include inflation escalators. The protection is not uniform or guaranteed, and it varies by asset, contract, and the debt an asset carries.
When is the next Bank of Canada rate decision?
The next scheduled announcement is October 28, 2026.
The Takeaway
Stocks up, bond yields climbing, and inflation above target is not an environment any single asset class handles well on its own. That is the practical argument for a portfolio that spans public and private markets, and for including real assets whose income is supported by long-term contracts. It is also why portfolio construction, rebalancing, and liquidity planning benefit from active, ongoing management rather than a set-and-forget allocation.
Disclosures
This article is provided for general educational and informational purposes only and does not constitute investment, legal, tax, or financial advice, nor an offer or solicitation to buy or sell any security. Kinsted Wealth Inc. is a registered portfolio manager under applicable Canadian securities legislation, including National Instrument 31-103. Market data, inflation figures, and third-party research referenced in this article are as of the dates indicated, reflect the views of the cited sources, are not verified or endorsed by Kinsted Wealth, and are not a prediction, projection, or guarantee of future performance. Historical relationships between asset classes may not repeat. Past performance is not indicative of future results. Real assets and private market investments involve risk, including the potential loss of capital, and are less liquid than public securities. Please speak with a Kinsted Wealth portfolio manager before making any investment decision based on the information in this article.
Sources
- Brett Bundale, The Canadian Press. "Inflation holds at 3% amid rising rent, travel prices: StatCan." CTV News, September 14, 2026.
- Alimat Aliyeva. "Canadian inflation stable at 3% in August." Azernews, September 14, 2026 (reporting Statistics Canada release; gasoline figures).
- "Canada August CPI 3.0% y/y vs 3.0% expected." investingLive, September 2026 (core measures CPI-trim and CPI-median).
- The Canadian Press. "Here's a list of July inflation rates for Canadian provinces." CTV News Guelph, August 17, 2026.
- "Canadian bond yields track US selloff while Bank of Canada holds." Benefits and Pensions Monitor, September 2026.
- "Canada 10-Year Yield Extends Three-Year High." Trading Economics, October 1, 2026.
- "Stock Market Today: October 1, 2026." Tapeboard.
- "Market recap: Week ended August 7, 2026." Co-operators.
- The Canadian Press. "S&P/TSX composite down more than 200 points." CTV News, October 1, 2026.
- Bank of Canada. "Press Conference: Policy Rate Announcement — September 2026."
- "How Rising Interest Rates Change the Relationship Between Stocks and Bonds." Morningstar.
- Blanchett, David. "Mind the Inflation Gap: Hedging with Real Assets." CFA Institute Enterprising Investor, July 10, 2025.
- "The unique advantages of infrastructure and how they can protect against inflation." Mackenzie Investments.
- "Why We Favor Listed Infrastructure—Inflation Lifting Rates." Brookfield Public Securities Group, May 13, 2021.
- "What inflation means for this defensive, high-yielding asset class." Livewire Markets.
- "Realizing the Potential in Infrastructure." Lazard Asset Management.
- "Will Real Estate and Private Equity Start to Shine Again in 2026?" Kiplinger, 2026.
Regards,
Kinsted Wealth
