MARKetS REPORT – Q2 2026

I’m uh gonna raise a fuss. I’m uh gonna raise a holler.

About workin’ all summer, just uh trying to earn a dollar.

• Summertime Blues by Eddie Cochran (1958)

Dear friends,  

Well there has certainly been a lot of fussing and hollering this summer, with war and trade disputes leading the way.  The U.S.-Iran war remained a constant factor in the 2nd quarter of 2026 as investors eyed the implications of higher energy prices on the wider economy and central bank policymaking. But by mid-June, an interim agreement led to a ceasefire and talks between Iran and the U.S. began in Switzerland. Despite a brief spate of renewed hostilities in the final days of the quarter, the price of Brent crude oil, which topped USD$120 a barrel in April, ended on June 30th at USD$72.92, close to the price it was just before Iran was attacked on February 28th.

The U.S. technology sector also remained in the spotlight with a substantial rotation away from the "Magnificent Seven" tech stocks in the latter stages of Q2. Shares in the tech titans drove up the U.S. NASDAQ index in April and May, but momentum slackened in June and then reversed as investors were concerned about the scale of spending by these same Mag 7 companies on Artificial Intelligence (AI).  Some investors shifted their attention to memory companies, power providers and other AI infrastructure suppliers. While Mag 7 stocks drifted sideways or fell as Q2 wound down the Philadelphia Semiconductor Index (SOX) which is the 30 largest US-listed companies engaged in the design, manufacturing and sale of semiconductors, ended the quarter up almost 100%.

Actual or proposed technology capital raises in June included the USD$75 billion SpaceX IPO on June 12th, a debut which valued the company at USD$1.77 trillion. SpaceX also tapped the fixed income market in June with an oversubscribed bond offering of USD$25 billion. Alphabet, Google’s parent company, completed a share sale of USD$84 billion earlier in the month and AI giants Anthropic and Open AI each filed preliminary paperwork for possible IPOs.

Stock Markets

Through all the news and noise of the second quarter, equity indices sprinted ahead, with the S&P/TSX Composite Index, Dow, S&P 500, Nasdaq and MSCI World all touching record highs in June before pulling back by quarter end. In the U.S., both the Nasdaq and S&P 500 chalked up their strongest quarterly gains since 2020 but each lost ground for the month of June. In Canada, the S&P/TSX Composite Index ended June essentially flat after falling from a record high mid-month.

For the three-month period ending June 30, Canada’s S&P/TSX Composite Index rose 6.96%, while in the U.S., the S&P 500 Index gained 15.10%, and the Nasdaq Index soared 21.60%.

Globally, the MSCI World Index advanced 13.97% and the MSCI EAFE Index rose 11.54%. In the U.K., the FTSE 100 Index added 4.02% while Germany’s DAX Index gained 10.21%. In Asia, Japan’s Nikkei 225 rose 37.32% and the MSCI China Index dropped -6.87%. 

Bond Markets

U.S. Treasury yields extended their increase to end another rising quarter as investors sold bonds amid inflation concerns and uneven progress in Middle East peace talks. The yield on the benchmark US 10-year note began Q2 at 4.35% and ended the three-month period at 4.67% (bond yields rise as prices fall). The FTSE Canada Universe Bond Index rose 2.01%.

Resources

Gold tumbled further, down to levels of November 2025, for its worst quarterly performance in a decade as the possibility of higher interest rates rose and retail investors lost their enthusiasm for the metal.  Gold sank -12.72% in Q2 to end the quarter at $4,007.69 US$ per ounce. 

Energy prices spiked in the first quarter of 2026, then lowered with the whispers of peace in the Middle East in Q2.  The price of Brent crude oil fell by -31.45% over the 2nd quarter to end at $72.92 US$ per barrel.

Monthly developments and data releases in June

Canadian economic activity bounced back in April with a 0.5% expansion, above Statistics Canada's 0.4% advance estimate and the best monthly gain since July 2025. Growth was driven primarily by energy alongside a pickup in manufacturing. Service industries also expanded, though at a more moderate pace. Manufacturing sales rose 4.2% to $77.1 billion in April, as petroleum and coal product sales jumped 22.6% to $11.8 billion, following a 25.5% increase in March.

April retail sales rose 0.5%, month-on-month, slightly less than Statistics Canada’s advance estimate of 0.6%. However, retail activity was unchanged in volume terms, indicating that higher prices, particularly for gasoline, were the primary driver of headline sales growth, as was also the case in March. Core retail sales (excluding autos and gasoline) declined 0.7%, month on month, after slipping 0.1% in March. But Statistics Canada’s preliminary estimate for May retail sales is for a solid gain of 1%.

Annual inflation rose to 3.2% in May, the highest level in more than two years, according to Statistics Canada, up from 2.8% in April. Higher energy costs featured prominently. In contrast, core inflation (excluding food and inflation) edged up only modestly and remained close to the Bank of Canada’s (BoC) target. Inflationary pressures should ease somewhat going forward as energy costs began falling in June.  Employment rebounded in May with a surprise gain of 88,000 jobs, pulling the unemployment rate down to 6.6% from 6.9% in April and partially offsetting some of the 112,000 net jobs lost in the first four months of 2026. The strength in hiring, alongside firmer hours worked, supports the view that recent recession headlines overstated weakness. Within this context the BoC held steady on its key interest rate, remaining at 2.25% on the announcement date of June 10th, the central bank's fifth consecutive rate hold.

In the U.S., the third and final estimate from the U.S. Bureau of Economic Analysis of Q1, 2026 GDP growth was 2.1%, a revision upwards of 0.5% from the second estimate. The advance estimate for Q2 2026 GDP is scheduled for July 30th. Retail sales rose 0.9% in May, after a 0.4% gain in April, according to the U.S. Commerce Department. Sales were likely aided by generous government tax refunds in both months, although economists expect that cash cushion is starting to dwindle. Unlike Canada, however, retail activity was still positive when gas sales were excluded. Clothing, accessory and furniture stores all posted gains and online sales rose 1.5%.

The U.S. economy posted another month of strong employment gains in May. Nonfarm payrolls jumped by 172,000 jobs after adding an upwardly revised 179,000 in April, according to the Bureau of Labor Statistics. The May gain doubled estimates of 85,000 new jobs made after an initial report of 115,000 in April. The May surprise and April revision suggests the labor market was gaining traction after stumbling last year.

U.S. inflation climbed in May, hitting a three-year high of 4.2%, year-over-year, as higher energy costs continued to bite. But by June 25th the average price of gas in the U.S. was USD$3.91 a gallon, down from USD$4.35 four weeks earlier, although still well above USD$3.18 a year ago. The core inflation rate, which excludes food and fuel costs, rose 2.9% year-over-year in May, its highest level since September 2025. Lower gas prices probably boosted consumer sentiment in June, according to the University of Michigan Consumer Index, with a reading of 49.5, slightly below forecasts of 50. But the June survey result was a welcome improvement on the 44.8 reported in May, the lowest U of M consumer sentiment report ever on record.

U.S. exports rose 2.6% in April, according to the Commerce Department, as the war boosted energy shipments to a new monthly record. Exports of industrial supplies, computers and aircraft were also strong. Imports climbed 2% from March on higher flows of electronics for AI data centers. The U.S. trade deficit in goods and services dipped to $55.9 billion in April, down 1.2% from the previous month.

Against this backdrop the U.S. Federal Reserve, as expected, left the federal funds rate unchanged in mid-June at the target range of 3.5%-3.75% for a fourth consecutive meeting. It was the first meeting under new Federal Reserve Chairman Kevin Warsh. The Fed also released an updated (from March) set of economic forecasts, with the most notable change being that core PCE inflation (the Fed's preferred inflation gauge) was revised higher to 3.3% for 2026 (previously 2.7%) and 2.5% in 2027 (previously 2.2%).

In the Eurozone, annual inflation rose in May to 3.2%, while the core reading, excluding food and energy, rose 2.5%. Energy prices were 10.9% higher in May than a year prior after an annualized 10.8% jump in April.  However, services inflation was up 3.5% in May, from 3.0% in April. The data was evidence enough for the European Central Bank (ECB) to increase its deposit interest rate by 25 basis points to 2.25% (its first policy response to the recent surge in energy costs). The ECB signaled growing concern that inflation pressures are spreading beyond energy to the wider economy.

In the UK, monthly GDP contracted by 0.1% in April, following increases of 0.3% in March and 0.4% in February. The April decline was driven by a 0.2% drop in services, which was partially offset by a 0.1% rise in construction; manufacturing was flat. The Bank of England held its policy rate at 3.75% in June, as expected. The Reserve Bank of Australia also left its policy rate unchanged at 4.35%, as expected.

In Japan, the Bank of Japan [BoJ] lifted its key policy rate a quarter point to 1.00%, as expected, while signaling a cautious continuation of policy normalization and concern over inflation pressures driven by higher energy costs and knock-on effects on consumer prices.

In China, data released in June indicated weakening domestic demand alongside continued reliance on exports. Inflation remained tame, as domestic softness and significantly lower oil consumption offset higher energy costs.

What can we expect now?

Canada’s GDP ‌gain in April, the largest ‌monthly rise in nine months, alleviated some concerns that the impact of U.S. tariffs was worsening. However, on July 1st the three Canada-United States-Mexico Agreement (CUSMA) countries must declare if they will renew the trade deal for a 16-year period. Choosing not to automatically triggers annual reviews for the next ten years. The U.S. opted not to renew.  Negotiations continue and CUSMA remains in force, leaving most Canadian exports to the U.S. tariff-free. But some important categories, notably steel, aluminum, copper, autos and lumber will continue to face punishing tariffs of between 25% -50%. Ongoing uncertainty that could stifle investment will continue to hang over the Canadian economy. One key date is July 24, when the U.S. administration is expected to introduce a new slate of global tariffs to replace ones struck down by the U.S. Supreme Court in February.

Investors will also remain alert to the progress of U.S.-Iran talks seeking a permanent end to the war. If sustained hostilities resume the potential for heightened inflationary pressures will weigh on central bank policymaking. For now, the contentious issue of who controls shipping through the Strait of Hormuz and on what terms is a key sticking point. Yet investment markets have survived a litany of challenges in the past few years and corporate profits, a fundamental yardstick for investors, have been resilient. In the U.S., corporate profits increased by $40.4 billion in Q1, 2026 and have been rising since Q2 of 2025. And despite a challenging trade landscape that may yet become more complicated, Canada has avoided a recession. 

Despite the unexpected upheavals from the conflict in the Middle East and ongoing trade disputes, the foundation of successful long-term investing remains in applying sound economic fundamentals and in identifying corporations with proven abilities to generate revenue, cash flow and profits for shareholders.  Markets have weathered shocks in the past and will do so again in the future.  If anything, the volatility in energy prices over Q2 is a timely reminder of the value of making diversification a core part of a long-term and disciplined approach to investing. They are also a reminder that experience matters.  I’ve reviewed my commentaries from past energy spikes and depressions.  In each of those moments and over the past 25 years that I have been an investment advisor, we stayed focused on the best investment opportunities.  That discipline doesn’t change in volatile markets; in fact, it becomes even more important.  We are here, fully engaged and working as hard as ever, with confidence in the opportunities ahead.

I want to take this opportunity to thank you for placing your trust in me and my team, and for the opportunity to assist you in working toward your financial goals.

Should you have any questions please do not hesitate to contact my office. We can be reached from 9am to 5pm at our office number 519-432-6744 (extension 238 for me and extension 239 for my assistant Susan).  Or after hours I can be reached on my cell phone, 519-859-6449.

Until we speak again, I hope you have a wonderful summer.

All the best,

Mark