Capital Market Comments April 2026

Economy

• Canadian GDP is expected to remain below trend, expanding 1.1% through 2026, constrained by slowing population growth, tariff-related pressure on export demand, and weakening business and consumer confidence amid uncertainty surrounding CUSMA.  In response to these challenges, the Canadian government has established a new advisory committee focused on Canada-U.S. economic relations. This 24-member committee will serve as a platform for sharing expertise and formulating strategies across all facets of the economic relationship between the two countries.  

• Canada's unemployment rate held steady at 6.7% in March, unchanged from February, as the economy added 14,000 jobs (mostly part-time). Looking ahead, the labor market is expected to remain stagnant through 2026, as slower population growth limits labor supply and weak economic conditions continue to constrain hiring.

• In March, headline inflation rose to 2.4% from 1.8% in February, coming in below economists’ consensus forecast of 2.6%. This increase was primarily attributed to higher gasoline prices, exacerbated by heightened geopolitical tensions in the Middle East.

• Despite this, the Bank of Canada's (BoC) preferred core inflation indicators remained relatively stable: the CPI median remained unchanged at 2.3%, while the CPI trim decreased to 2.2% from 2.3%. On an annualized three-month basis, both CPI trim (2.0%) and CPI median (1.3%) continued to suggest contained underlying momentum. This month’s inflation report reinforces our view that the BoC should, at this juncture, look through the energy-related increase and maintain the policy rate at its current level. Core inflation remains contained, consistent with an economy exhibiting excess supply.

Equity Markets

• U.S. equities experienced a significant rally in April, overcoming challenges posed by geopolitical uncertainty, oil price volatility, and inflation concerns. The S&P 500 achieved an impressive return of 10.5%, primarily driven by robust corporate earnings and a strong economic growth. This performance marked the best monthly return since November 2020.

• The top-performing sector during the month was Communication Services (+18.54%), while the worst-performing sector was Energy, declining 3.46%.

• The S&P/TSX Composite finished April on a positive note, gaining 3.81%. The top-performing sectors during the month were Health Care (+13.23%) and  Financials (+10.62%), while the worst-performing sector was Communication Services, declining 6.54%.  

Fixed Income

• During the month, Canadian 10-year bond yields continued to rise, resulting in negative returns (see chart below).

• The FTSE Mid Index declined 8 basis points. Both Corporate (+0.26%) and Provincial (+0.04%) bonds outperformed Government of Canada (-0.3% bonds. Markets are increasingly looking beyond the initial oil price shock to broader second-order effects, including higher inflation expectations, rising interest rates, and tighter financial conditions.

• The BoC maintained its overnight rate at 2.25% during its April 29^th meeting, as anticipated. During the subsequent press conference, Governor Macklem highlighted that the Bank of Canada's monetary policy is not primarily focused on the surge in energy prices. Instead, the primary concern is to prevent this surge from escalating into persistent inflation. At present, there is limited evidence to indicate that this is happening. Core inflation measures have been showing a deceleration trend, and longer-term inflation expectations remain stable. However, the volatility of oil prices remains unpredictable, and the BoC will continue to monitor core inflation closely to assess the ongoing impact.

• On April 29th, the Federal Reserve (Fed) maintained the Fed Funds rate at 3.75%. The meeting underscored the unusual divergence among the committee members, with four officials dissenting from the decision to hold interest rates. Policymakers are currently facing the challenge of balancing the threats of persistent inflation and a softening labour market. Furthermore, the surge in oil prices and the resulting financial market volatility have introduced additional uncertainty for policymakers.