Capital Markets Comments June 2026

Economy

• Canada's economy has shown resilience in the early part of 2026, maintaining stability despite a series of significant headwinds. The economy experienced a second consecutive GDP decline in Q1, which initially raised concerns about the onset of a recession. However, a closer examination of the underlying data reveals a more optimistic narrative. Per-capita growth indicates that Canada is currently in an early stage of recovery rather than experiencing a contraction.

• The Canadian labour market added 88,000 jobs in May, sharply reversing course from April’s losses. The unemployment rate fell to 6.6% from 6.9%.  Going forward, the labour market is anticipated to face ongoing challenges through 2026.

• Headline inflation accelerated to 3.2% in May from 2.8%. The significant increase was primarily driven by higher gasoline prices. Despite the jump in headline inflation, core inflation measures preferred by the BoC remained stable, indicating domestic price pressures remain contained.   

Equity Markets

• The S&P/TSX Composite finished the quarter on a positive note, gaining 6.96%. The top-performing sector during the month was Financials (see chart) (+25.57%), while the worst-performing sector was Materials, declining 11.53%.

  
  

  

• Despite concerns surrounding the long-term viability of the AI sector and inflationary pressures, the S&P 500 achieved a 15% gain in the second quarter, marking its strongest performance since Q2 2020. This impressive surge was largely driven by the robust earnings from semiconductor companies, which significantly bolstered investor confidence, even in the midst of an unpredictable macroeconomic environment.

• The top-performing sectors during the quarter were Information Technology (+31.79%) and Industrials (+14.85%), while the worst-performing sector was Energy, declining 13.45%.

Fixed Income

• During the month, bond yields remained quite volatile. Overall, yields declined across the yield curve due to weaker-than-expected macroeconomic data. This included a surprise contraction in the first quarter GDP and a persistently challenged labour market.  As a result, 10-year bond yields ended the month lower, generating positive returns (see chart below).

  

• The FTSE Mid Index returned 0.73%. Both Government (+0.75%) and Provincial (+0.75%) bonds outperformed Corporate (0.59%) bonds.

• As expected, the BoC held the overnight bank rate at 2.25% for a fifth consecutive meeting. The Governing Council highlighted the complexity of responding to opposing forces of slower growth and higher inflation from the Iran Conflict.  The BoC will continue to look through the war’s near-term impact on headline inflation but will not let higher energy prices become persistent inflation.  

• The Federal Reserve (Fed) held the policy rate steady at 3.75% for a fourth consecutive meeting. The move was fully expected by market participants. The Federal Reserve adopted a more hawkish stance under Kevin Warsh's inaugural appearance as the new Chair, effectively eliminating the Fed's previous easing bias. Moreover, the committee released an updated set of economic forecasts, referred to as the “Summary of Economic Projections”. Significant adjustments were observed in the Core Personal Consumption Expenditures (PCE) inflation rate and the Median projection for the Federal Funds rate, both of which were increased.