Markets reacted to the Bank of Canada's December 2025 rate announcement with initial mixed signals. Bond yields spiked. The panic was immediate and pointed: investors saw 2022 happening again.

It wasn't. And the confusion over why reveals how badly the 2022 collapse has warped the way people read rate increases.

The 2022 Wound Was Structural

The 2022 bear market was historically unusual because both stocks and bonds fell simultaneously. The traditional 60/40 portfolio, 60% equities, 40% fixed income, was built on the assumption that when stocks dropped, bonds would rise or at least hold steady. That hedge broke. Bonds delivered their worst calendar year on record, down roughly 13% for the aggregate index, while equities fell 18%. Investors who thought diversification meant safety learned otherwise.

The reason that happened was the starting point. Yields in early 2022 were near historic lows. The 10-year Treasury sat below 1.5% in January of that year. When the Fed began raising rates aggressively to fight inflation, bond prices had nowhere to go but down, because bond prices move inverse to yields. Stocks fell for a different reason: valuations had been supported by the idea that low rates would persist. When that assumption died, the discount rate applied to future earnings shot up, and growth stocks, particularly technology, collapsed under the weight of higher required returns.

By September 2026, the setup is unrecognizable. The 10-year Treasury yield is sitting near 4.8% to 5.0%, and the Bank of Canada's overnight rate has been in restrictive territory for over a year. Bonds are no longer priced for perfection. The cushion exists. A 50-basis-point move higher in yields from this level would cause short-term losses in fixed income, but nothing close to the structural wipeout of 2022. The math of bond duration works differently when you start at 4% than when you start at 1%.

Earnings Are Doing the Work Valuations Couldn't

The other half of the equation is corporate profits. In 2022, rate hikes hit stocks while earnings expectations were still inflated by post-pandemic stimulus and supply-chain reopening optimism. Reality caught up, and earnings disappointed. The multiple compressed and the denominator fell at the same time.

In 2026, earnings have already adjusted. The S&P/TSX Composite, weighted roughly 30% toward financials and energy, is being supported by sectors that either benefit from higher rates (banks earn more on lending spreads) or remain resilient to them (energy profits track commodity prices more than the cost of capital). Canadian banks reported net interest margins near multi-year highs in Q2 2026. That doesn't happen in an environment where rate hikes are breaking the economy.

A rate hike triggers a bear market when corporate earnings cannot grow faster than the cost of capital. Right now, they can. The gap between earnings yield on the TSX (roughly 5.8% as of August 2026) and the 10-year Government of Canada bond yield (approximately 3.9%) remains wide enough to justify equity risk. In 2022, that gap was compressing. In 2026, it is stable.

TINA Is Dead, and That's Stabilizing

For most of the 2010s, "There Is No Alternative" (TINA) pushed capital into equities because bonds paid nothing. In 2026, alternatives exist. A 5-year GIC pays over 4%. Investment-grade corporate bonds yield 5% to 6%. Investors can exit equities without capitulating into cash at zero. That optionality prevents forced selling. When people have reasonable places to rotate, they don't panic-dump holdings in unison.

The death of TINA has been misread as bearish for stocks. It is the opposite. Markets are more stable when participants have exit ramps that don't require liquidation at any price.

The current rate environment is restrictive, but restrictive does not mean recessionary if profits hold. The Bank of Canada raises rates when it believes the economy can handle it. The scar of 2022 was real, but the replay is not.