• Markets close higher as bond yields pull back – The TSX and U.S. equity markets ended higher on Thursday, with consumer discretionary and financials leading gains. The 10-year Government of Canada yield declined to 3.79%, and the 10-year U.S. Treasury yield finished near 4.77% after Federal Reserve Governor Chris Waller indicated that he would support holding interest rates steady later this month, provided upcoming inflation data do not surprise to the upside. In response, futures markets raised the implied likelihood of the Fed leaving rates unchanged this month to roughly 50%, up from 37% yesterday. Internationally, Asian equities finished mixed overnight, while European markets advanced. In energy markets, WTI oil extended its recent rise, trading near $92 per barrel amid continued disruptions in the Strait of Hormuz. The U.S. dollar weakened against most major currencies, consistent with the decline in Treasury yields.
   
• Productivity growth holds steady as labour-cost pressures ease –U.S. nonfarm business sector productivity, which measures output per hour worked, was unchanged from the preliminary estimate, increasing at a 1.4% annualized rate in the second quarter, in line with expectations. This marked an improvement from the first quarter's 0.8% gain. Hourly compensation rose 2.6% from a year earlier, providing continued income growth that should help support consumer spending and the broader economy. Meanwhile, unit labour costs, which measure compensation adjusted for changes in productivity, were revised lower to a 1.2% annualized increase, slightly below expectations for a 1.3% gain. In our view, the combination of steady productivity growth and moderating unit labour costs is encouraging for the inflation outlook. If sustained, these trends could help businesses to absorb wage increases without fully passing along these costs to consumers through higher prices.
   
• Jobless claims edge higher but remain low – U.S. initial jobless claims rose modestly to 206,000 this past week, slightly above expectations for 205,000. Continuing claims, which measure the total number of people receiving benefits, also increased to 1.78 million, but remained below forecasts for 1.79 million. Together, the figures suggest that layoffs remain limited and labour-market conditions are relatively healthy. Friday's U.S. employment report should provide a more comprehensive assessment of the labour market. Consensus estimates call for a gain of 65,000 jobs in August and an increase in the unemployment rate to 4.2%.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks rise as oil rally slows - Stocks rebounded today after a difficult start to September, with the TSX materials sector outperforming. Despite the first advance in four days, investor sentiment remains somewhat cautious amid elevated geopolitical tensions following a new wave of U.S. strikes on Iran, which recently helped push oil prices to their highest level since July. Diesel prices remain a key area of focus, hovering near their April highs and potentially adding to near-term inflation pressures. The Bank of Canada (BoC) rate decision was today's highlight. The bank held policy rates steady at 2.25% as was widely expected, but its communication shifted in a more hawkish direction, pushing short- and long-term government bond yields to multi-month highs. South of the border, the August ADP private-payrolls report showed job growth of 38,000, slightly below expectations, with education and health services accounting for much of the increase. In corporate news, Dell shares surged 15% after the company reported strong quarterly results, providing another encouraging sign that AI-related spending remains robust.
   
• Yields and central banks remain a key focus - Rising government bond yields have been the primary challenge for markets amid resilient economic growth and strong corporate earnings, as higher rates continue to put pressure on equity valuations. The 10-year Government of Canada yield hit 3.80%, the highest level in more than two years. We believe several factors have contributed to the rise in yields, including a shift in central bank expectations and increased bond issuance from both public and private borrowers. More recently, investor concerns have moved toward the potential inflationary impact of higher energy prices. The BoC today noted that high oil prices pose upside risks to inflation and that the bank is “prepared to adjust monetary policy as needed”, opening the door to potential rates hikes. The bond market is now pricing in two rate increases by March of next year. In the U.S., we expect that attention over the next two weeks will be centered on economic data releases that could influence the Fed's decision at its September 16-17 meeting. Last week, Fed Chair Kevin Warsh delivered a hawkish message, noting that economic growth remains solid, the labor market is stable, and inflation is still too high, suggesting that the Fed still has "work to do". We believe Friday's employment report, and perhaps even more importantly next week's inflation data, will play a significant role in determining whether policymakers decide to raise rates in September. Following Warsh's remarks, futures markets have increased the implied probability of a September rate hike to roughly 67%, up from about 35% before his speech.
   
• Navigating seasonal headwinds with solid fundamentals - Historically, September has been the weakest month of the year for stocks, generating both the lowest average return and the lowest probability of positive performance. This seasonal pattern can be amplified during Midterm Election years, when political uncertainty often weighs on investor sentiment. We believe context, however, is important. Periods of September and October weakness have typically coincided with deteriorating economic conditions or markets that were already under pressure, neither of which appears to characterize the current environment. Moreover, the historical Midterm Election effect has generally been short-lived, with markets often regaining momentum as election-related uncertainty fades. Underlying fundamentals remain constructive, in our view. AI-related investment continues to help support corporate spending, earnings growth remains robust, and current estimates point to solid U.S. economic activity in the third quarter. At the same time, credit spreads remain tight and financial conditions are accommodative. While seasonal headwinds merit attention, they are not sufficient on their own to derail the broader market uptrend, in our view.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}

• Rising bond yields and renewed geopolitical tensions weigh on sentiment to begin September – North American equity markets closed lower on Tuesday, with renewed upward pressure on global bond yields weighing on investor sentiment, in our view. The 10-year U.S. Treasury yield rose to a year-to-date high of approximately 4.8%, while the 30-year Treasury yield climbed to just below 5.3%. The rise in government bond yields was not isolated to the U.S. Japan’s 10-year government bond yield reached 3% for the first time since 1996, while yields in the United Kingdom and the euro area also moved broadly higher. Canadian yields bucked the trend, with the 10-year GoC yield finishing the day little changed. The TSX finished the day lower by more than 1%, with weakness in materials, technology and industrials weighing on performance. Contributing to the rise in global bond yields and the risk-off tone in equity markets was renewed upward pressure on oil prices. Two oil tankers were reportedly attacked while transiting the Strait of Hormuz late Monday, followed by additional U.S. strikes against Iranian targets on Tuesday. In response to the attacks and the broader escalation in regional tensions, WTI crude oil rose by over 5%, finishing above $90 per barrel.
   
• Global rise in bond yields weighs on sentiment – Rising bond yields were back in focus on Tuesday, with government bond yields across the globe moving higher and back near multi-year highs. The 10-year Japanese government bond yield reached 3%, its highest level since 1996, while 10-year government bond yields in Germany, the United Kingdom, and France are also near multi-year highs. U.S. yields followed suit, with the 10-year U.S. Treasury yield rising to a year-to-date high of approximately 4.8% today, however Canadian yields were little changed. As we outlined in a recent Weekly Market Wrap, we believe several factors are contributing to the rise in global bond yields, including elevated corporate issuance, large and persistent U.S. budget deficits, uncertainty around inflation, expectations for additional interest-rate hikes by global central banks, and greater compensation demanded by investors for holding longer-maturity bonds amid an uncertain backdrop. We expect these factors to remain prevalent through the remainder of the year, and we believe the 10-year GoC yield will continue to trade between 3.5% and 4%, while the 10-year U.S. Treasury yield will likely trade between 4.5% and 5%, in our view. Although yields that are higher than those of recent years help improve the potential for fixed-income returns over a multi-year horizon, our expectation that yields will remain elevated through year-end suggests limited scope for meaningful price appreciation in investment-grade bonds over the near term. Additionally, we do not expect the rise in bond yields to derail what we continue to view as a constructive backdrop for equities, supported by robust corporate profit growth and steady economic activity. Accordingly, we recommend that investors consider overweighting stocks relative to bonds, with a particular emphasis on Canadian small- and mid-cap stocks, U.S. large-cap stocks and emerging-market equities.
   
• U.S. labour demand and manufacturing activity in focus – U.S. labour-market data was in focus today, with the July JOLTS job openings reading coming in at just under 7.3 million, slightly below consensus expectations. After a period of historically tight labour-market conditions in the years immediately following the pandemic, we would characterize current labour-market conditions as broadly balanced, with the number of job openings modestly exceeding the number of unemployed workers through the end of July. Importantly, we believe the U.S. labour market remains supportive of household spending and economic activity, with hiring continuing at a modest pace and layoffs remaining limited. Given these more balanced conditions, we also do not view the labour market as a meaningful source of inflationary pressure at present. In addition to the labour-market data, the August ISM Manufacturing PMI provided an update on the goods-producing side of the U.S. economy. The headline index edged down to 54.6 from 55.6 in July but remained comfortably above the expansion-contraction threshold of 50, marking the eighth consecutive month of expansion. Looking beneath the headline, the production subindex was little changed at a healthy 58.3, compared with 58.5 in July. Meanwhile, the forward-looking new orders component declined to 53.7 from 56.7 but remained in expansionary territory, pointing to continued growth in demand, albeit at a more moderate pace. Perhaps the fly in the ointment in today’s report was the prices index, which remained elevated and unchanged from July at 71.1. This suggests to us that inflationary pressures remain in the pipeline, potentially reflecting, in part, the rise in oil prices over the past month. Taken together, we view today’s batch of economic data as evidence that U.S. labour-market conditions remain broadly balanced, while manufacturing activity continues to expand at a healthy pace following a prolonged period of stagnation from late 2022 through 2025. While upside risks to inflation remain, we expect healthy economic growth through year-end.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks edge lower following escalation in the Middle East – North American equity markets closed mostly lower on Monday following reports that U.S. forces struck Iranian targets over the weekend, marking the first exchange of fire between the two countries since late July. Oil prices traded higher in response, while the broader equity-market reaction remained relatively contained. The TSX underperformed its U.S. counterparts, as weakness in the materials sector weighed on the index amid lower gold prices. U.S. equities, meanwhile, posted only modest declines. For the month, both the TSX and the S&P 500 recorded solid gains, advancing approximately 2.9% and 2.6%, respectively, and overcoming August’s typically less favourable seasonal backdrop. In bond markets, Government of Canada yields were little changed, with the 10-year yield finishing the day near 3.74%. South of the border, longer-term Treasury yields moved higher, with the 10-year U.S. Treasury yield ending near 4.75%, while shorter-term yields were little changed.
   
• Markets look past escalation in the Middle East – Geopolitical tensions escalated over the weekend, with U.S. forces striking Iranian targets that U.S. officials said were preparing to deploy sea mines in the Strait of Hormuz. Iran retaliated by launching missiles at U.S. military bases in Jordan, although most of the incoming missiles were reportedly intercepted. The military action marked the first direct exchange of fire between the two sides since late July. Oil prices moved higher in response, while the reaction in equity markets was more contained. Although equity markets experienced a brief period of volatility at the onset of the conflict this spring, with the TSX falling roughly 9% from its previous all-time high, stocks have since proven resilient in the face of continued uncertainty, with North American and overseas equity markets firmly higher year-to-date. While the path ahead in the Middle East remains uncertain, we continue to believe the outlook for global equity markets is constructive, supported by robust profit growth and steady economic activity. Against this backdrop, we recommend that investors consider overweighting Canadian small- and mid-cap stocks, U.S. large-stocks and emerging-market equities.
   
• Bank of Canada and labour-market data in focus this week – Central-bank policy and labour-market data will take centre stage in Canada this week, with the Bank of Canada’s interest-rate decision on Wednesday morning and the August Labour Force Survey on Friday. Markets expect the Bank of Canada to hold its policy rate steady at 2.25%, an outcome we also view as likely, particularly as the recent escalation in trade tensions poses downside risks to economic activity. As outlined in our Market Pulse, we expect the latest trade actions to represent a moderate but manageable headwind to the Canadian economy. On the employment front, investors will likely be watching to see whether Canada can extend its recent run of strong job gains, with employment expected to have increased by 24,000 in August.
  
  South of the border, investors will have a busy week of labour-market data to digest as well, beginning tomorrow with the July JOLTS job-openings report, followed by ADP private-payroll data on Wednesday. Friday will bring the August nonfarm-payrolls and unemployment report, with markets expecting payrolls to have risen by 65,000 and the unemployment rate to have edged higher to 4.2%. Following Fed Chair Kevin Warsh’s hawkish-leaning comments on Friday, futures markets have moved to price in roughly a 65% probability of an interest-rate hike at the Fed's September meeting, up from approximately 35% before his remarks. In our view, the August labour-market and inflation data released before the September 16 meeting will be important in shaping the Fed’s decision. With U.S. inflation having remained above the Fed’s target since 2021 and Chair Warsh characterizing labour-market conditions as consistent with full employment, the Fed’s focus will likely centre on the inflation side of its dual mandate. While a September hike is not a foregone conclusion, we expect the Fed to have limited tolerance for meaningful upside inflation surprises and to require sustained evidence of moderating core price pressures to remain on hold.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks edge lower with economic growth and Fed policy in focus – North American equity markets closed lower Friday despite a second-quarter GDP report showing that the Canadian economy expanded at a solid 3.3% annualized rate. However, monetary policy took centre stage as investors assessed remarks from Fed Chair Kevin Warsh emphasizing that U.S. inflation remains uncomfortably high for policymakers. Markets interpreted Warsh’s remarks as hawkish, sending Treasury yields higher, particularly at the shorter end of the yield curve. The 2-year U.S. Treasury yield rose 0.12 percentage points to 4.35%, while the 10-year yield increased to 4.72%. Upward pressure on yields was also evident in Canada, with the 2-year Government of Canada yield rising to 3.01% and the 10-year yield climbing to 3.72%. For the week, the TSX posted a modest decline while major U.S. averages were modestly higher, supported by strength in the technology sector. Overseas, Asian markets finished mixed, while European markets were mostly higher after the eurozone Economic Sentiment Indicator improved in August. In commodities, oil prices were little changed, with WTI crude oil closing near $83 per barrel.
   
• Economic growth rebounds in the second quarter – Today's second-quarter GDP report confirmed that Canadian economic activity improved in recent months, with real GDP expanding at a solid 3.3% annualized rate. First-quarter growth was also revised modestly higher to an annualized rate of 0.3%, meaning Canada avoided a technical recession following the contraction in the fourth quarter of 2025. Strong household spending, rising exports and solid private-sector investment contributed to the acceleration in second-quarter growth. Looking ahead, Statistics Canada’s advance estimate indicated that real GDP was unchanged in July, suggesting that some of the second-quarter momentum may have faded early in the third quarter. Renewed trade tensions are also likely to heighten uncertainty for businesses in the months ahead, potentially weighing on investment and broader economic activity. However, as outlined in our latest Market Pulse, we expect renewed trade policy uncertainty to represent a meaningful but manageable headwind for the Canadian economy. From an investment perspective, we believe the TSX’s exposure to commodities, particularly through the energy and materials sectors, could provide support for Canadian equities amid continued geopolitical and trade-policy uncertainty.
   
• Odds of a September Fed rate hike rise following Chair Warsh’s remarks – Monetary policy was in focus Friday as investors assessed Fed Chair Kevin Warsh’s remarks on the U.S. economic outlook and conduct of monetary policy at the Fed’s annual Jackson Hole Economic Policy Symposium. Warsh characterized underlying economic activity as solid, supported by robust business investment, steady consumer spending and labor-market conditions consistent with full employment. Perhaps providing some clarity following the ambiguity surrounding the July meeting, Warsh also reaffirmed that 2% inflation, as measured by the personal consumption expenditures (PCE) price index, remains the Fed’s “firm and fixed” target. On inflation, Warsh noted that price pressures remain above the Fed’s objective across a range of measures. He emphasized that policymakers must be confident that underlying inflation is moving toward 2% “clearly and at sufficient speed,” adding that “otherwise, we have work to do.” Markets interpreted the remarks as hawkish, with short-term Treasury yields rising and the market-implied probability of a September rate hike increasing from roughly 35% on Thursday to around 55% following the speech. Before the September meeting, policymakers will receive another employment report and the August consumer price index reading, both of which will likely factor into the decision. However, with inflation having remained above the Fed’s 2% target since 2021, we believe policymakers have limited tolerance for further upside inflation surprises.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}