• Markets finish higher as broad gains offset tech pullback – Canadian and U.S. equity markets closed higher on Tuesday, with the TSX reaching a record high. Selling pressure in semiconductor stocks appeared to carry over from Asian markets, where South Korea's Kospi index fell more than 10%. Overall, today's move was an extension of the recent trend of market leadership widening beyond technology. Bond yields declined, with the 10-year Government of Canada yield at 3.53% and the 10-year U.S. Treasury yield near 4.60%. In energy markets, WTI oil prices extended their decline, falling below $80 per barrel. The U.S. dollar weakened modestly versus major currencies, consistent with the drop in bond yields.
   
• Several Magnificent 7 companies to report earnings this week – Meta Platforms (Facebook, Instagram) and Microsoft are scheduled to release quarterly results Wednesday, followed by Amazon and Apple on Thursday. In addition to earnings results, investors will likely focus on capital-spending plans and evidence that substantial AI investments are translating into revenue and earnings growth. Alphabet (Google) raised its 2026 capital-expenditure forecast last week, which contributed to a negative reaction in its share price. In our view, this response reflects a shift in investor expectations: markets appear increasingly reluctant to reward higher AI spending on its own and instead are looking for progress in earning a return on that investment. More broadly, while earnings season is still in its early stages, results have been strong. With about a third of S&P 500 companies reporting, 85% have beaten analyst estimates by an average upside surprise of 37%. As a result, forecasts for second-quarter earnings growth have been revised higher to 36%, up from 22% at the end of the quarter. Energy companies are expected to post the strongest growth — supported by higher oil prices during the quarter — followed by the communications and technology sectors. Earnings gains are also forecast to be broad-based, with 10 of the 11 sectors expected to report year-over-year increases. If realized, we believe wider participation could help make the market's advance more durable by reducing its reliance on a small group of mega-cap companies. It could also help create a more favourable backdrop for diversified portfolios. We continue to recommend overweight positions in U.S. large- and mid-cap stocks, as well as emerging-market equities.
   
• Fed appears positioned for a hawkish pause– The Fed's Open Market Committee (FOMC) began its July meeting today, with markets expecting policymakers to maintain the fed funds target range at 3.5%-3.75%. We agree that no change is the most likely outcome, although one or two of the 12 voting members could dissent in favour of a rate increase. Because the rate decision itself is unlikely to surprise markets, we expect attention to center on any changes to the policy statement and Chair Kevin Warsh's tone in the press conference. With the Fed's employment mandate largely being met and inflation above the 2% target, we expect the policymakers to emphasize inflation risks and preserve the option to raise rates at a future meeting. That could make the September meeting more consequential. In our view, the likelihood of a rate hike is rising, especially if geopolitical tensions escalate and oil prices rebound. Conversely, the inflation outlook could become more balanced if the U.S.-Iran pause leads to a longer ceasefire and oil prices remain contained. Tighter policy cannot directly resolve a supply-driven inflation shock, but it can help prevent higher energy prices from becoming embedded in broader inflation expectations. Short-term bond yields have moved higher as markets price in a higher probability of Fed rate hikes, offering a better yield advantage versus cash yields, in our view.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Markets edge higher as oil prices retreat to start a busy week – The TSX and U.S. equity markets closed modestly higher on Monday as WTI oil fell sharply to about $82 per barrel. The U.S. and Iran have paused military strikes, creating an opening for diplomacy and reducing near-term concerns about disruptions to global energy supplies. Lower energy prices have also helped ease some inflation concerns, contributing to a decline in bond yields, with the 10-year Government of Canada yield at 3.56% and the 10-year U.S. Treasury yield near 4.65%. The positive tone extended internationally, with Asian equities finishing higher overnight and Europe also advancing.
   
• Several Magnificent 7 companies to report earnings this week – Meta Platforms (Facebook, Instagram) and Microsoft are scheduled to release quarterly results Wednesday, followed by Amazon and Apple on Thursday. In addition to earnings results, investors will likely focus on the companies' capital-spending outlook and progress in converting substantial AI investments into revenue and earnings growth. Alphabet (Google) raised its 2026 capital-expenditure forecast last week, which contributed to a negative reaction in its share price. In our view, investors increasingly want to see return on investment rather than spending growth alone. While still early in the earnings season, results have been solid so far. With 27% of S&P 500 companies reporting, 83% have beaten analyst estimates by an average upside surprise of 8.7%. As a result, forecasts for second-quarter earnings growth have been revised higher to 36%, up from 22% at the end of the quarter. Energy companies are expected to post the strongest growth — supported by higher oil prices during the quarter — followed by the technology and materials sectors. Earnings gains are also forecast to be broad-based, with 10 of the 11 sectors expected to report year-over-year increases. If realized, we believe wider participation could help make the market's advance more durable by reducing its reliance on a small group of mega-cap companies. It could also help create a more favourable backdrop for diversified portfolios, including value-oriented and cyclical allocations.
   
• Fed expected to hold rates steady – The Fed's Open Market Committee (FOMC) will conclude its July meeting on Wednesday. Markets expect policymakers to leave the target range for the fed funds rate unchanged at 3.5%-3.75%. We agree that holding rates steady is the most likely outcome, although a few dissenting votes in favour of a hike are possible. Investors will likely focus on any changes to the policy statement and Chair Kevin Warsh's tone in the press conference. Recent labour-market resilience and firmer inflation likely support a more hawkish message, making the September meeting look more consequential. In our view, the likelihood of a rate hike is rising, especially if geopolitical tensions escalate and oil prices rebound. Conversely, the inflation outlook could become more balanced if the U.S.-Iran pause leads to a longer ceasefire and oil prices remain contained. Tighter policy cannot offset a supply-driven inflation shock, but it can help anchor inflation expectations. With growth supported by resilient consumer spending and continued AI-related investment, we think the Fed will likely focus on whether inflation pressures are temporary or becoming more persistent in the months ahead.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Stocks finish mixed with geopolitics and trade policy in focus – North American equity markets were mixed on Friday as reports indicated that Iran had rejected a new U.S. ceasefire proposal amid ongoing U.S. military strikes on Iranian targets. The S&P 500 finished little changed, while the technology-heavy Nasdaq declined 0.6%, pressured by weakness across the technology sector, particularly among semiconductor stocks. Outside of technology, markets were more resilient, with both the TSX and Dow Jones Industrial Average posting modest gains. Despite the lack of diplomatic progress, oil prices eased, with WTI crude falling below $90 per barrel. Even so, crude prices finished the week approximately 9% higher. In addition to geopolitical developments, investors remained focused on trade policy after the U.S. administration announced new global tariffs ranging from 10% to 12.5%. The tariffs took effect overnight, replacing the temporary 10% levies that had been implemented in February. Overseas, Asian markets moved lower amid weakness in technology shares, while European equities closed mostly higher on signs of improving economic activity. The eurozone S&P Global Composite PMI rose to 51.9 in July, its highest reading in five months and the first indication of expansion in four months. Similarly, U.S. business activity strengthened in July, with the preliminary Composite PMI reaching an eight-month high of 53.6. Bond yields ended the session slightly lower, with the 10-year GoC yield falling to 3.60% and the 10-year U.S. Treasury yield closing at 4.68%.
   
• U.S. announces new global tariffs – With the global 10% U.S. tariff implemented under Section 122 in February expiring overnight, the U.S. administration announced replacement tariffs yesterday evening of 10%–12.5%, which it says are designed to combat forced labour. The newly implemented tariffs took effect overnight under Section 301 of the Trade Act of 1974. The Section 301 tariffs apply to 60 U.S. trading partners, although certain products—including oil, gas and fertilizers—are exempt. Additionally, the newly announced tariffs will not stack on top of existing tariffs imposed under Section 232, including those on steel and aluminum imports, while CUSMA-compliant goods will retain their existing exemptions. Given that yesterday’s tariff announcement does not represent a meaningful change from the previous Section 122 tariff rate, we expect its economic impact to be limited. However, further trade-policy action remains possible. The U.S. is conducting investigations into industrial overproduction in 16 countries and economies including China, Japan, and the European Union. Separately, on Monday evening, the U.S. announced a 50% tariff on approximately $20 billion of Canadian goods, set to take effect in August. The upshot is that yesterday's announcement is unlikely to materially alter the near-term economic outlook because they largely preserve the existing tariff baseline, in our view. Trade-policy uncertainty may still weigh on investment among affected businesses, but we do not expect a return to the more disruptive tariff environment of spring 2025.
   
• Tech earnings to remain in focus — Following Alphabet’s earnings announcement Wednesday night, technology earnings and spending trends will remain in focus over the coming week, with Microsoft, Meta, Amazon, and Apple all scheduled to report. The technology-heavy Nasdaq fell more than 2% yesterday following Alphabet’s decision to raise its full-year capital-expenditure guidance, as investors appeared increasingly focused on the tangible returns generated by the substantial AI investment. Investors’ focus on earnings growth has meant that much of this year’s equity-market gains have been driven by expectations for stronger earnings rather than valuation expansion. In fact, while we would not characterize the market as cheap, the Nasdaq-100 trades at a modest discount to its 10-year average forward price-to-earnings multiple. Looking ahead, earnings growth is expected to remain solid this year, with the S&P 500 projected to see full-year earnings growth of 28%, with positive contribution from all 11 sectors and led by energy, technology and communication services. In our view, AI remains a durable investment theme, but diversification remains critical. As part of our U.S. opportunistic equity-sector guidance, we favour industrials, which could benefit from improving manufacturing activity as well as continued infrastructure and defense spending. We pair this cyclical exposure with communication services, providing participation in the AI investment theme. Within Canadian equities, we favour the energy, materials, and industrials sectors.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Markets pull back as oil, bond yields extend their rise – The TSX and U.S. equity markets closed lower on Thursday, as WTI oil climbed back above $90 per barrel amid geopolitical tensions and disruptions to key Middle East shipping routes. Higher energy prices are adding to inflation concerns, contributing to an increase in bond yields, with the 10-year Government of Canada yield at 3.65% and the 10-year U.S. Treasury yield near 4.70%. International equity markets were mixed, with Asia finished mostly higher overnight, while Europe ended lower. The U.S. dollar also strengthened against major currencies, consistent with higher Treasury yields.
   
• Alphabet and Tesla report second-quarter earnings – Alphabet (Google) reported second-quarter earnings per share after market close yesterday that were about in line with estimates after excluding a large gain on its SpaceX stake. The company's shares ended lower as investors appeared to focus on management's decision to raise its 2026 capital-expenditure forecast to between $195 billion and $205 billion. Alphabet's higher investment outlook helps reinforce our view that the AI infrastructure buildout remains a durable theme. However, the negative share-price reaction may indicate that investors are becoming more focused on returns generated on AI-related investments. Tesla shares also finished lower after the company reported earnings that were below expectations. More broadly, estimates point to a strong earnings season, with S&P 500 earnings forecast to increase 23% from a year earlier. Energy companies are expected to post the strongest growth — supported by higher oil prices — followed by the technology and materials sectors. Earnings gains are also forecast to be broad-based, with 10 of the 11 sectors expected to report year-over-year increases. If realized, we believe wider participation could help make the market's advance more durable by reducing its reliance on a small group of mega-cap companies. It could also create a more favourable backdrop for diversified portfolios, including value-oriented and cyclical allocations.
   
• Jobless claims fall well below estimates – Initial U.S. jobless claims declined to 187,000 this past week, the lowest reading in more than 50 years and well below expectations for 215,000. Continuing claims, which measure the total number of people receiving benefits, held roughly steady at 1.8 million, lower than forecasts to tick up to 1.82 million, suggesting displaced workers are finding new employment. The unemployment rate stands at 4.2% — in line with the Fed's long-term projection — which is widely considered to be its estimate of full employment. In addition, 7.6 million job openings exceed the 7.1 million unemployed workers. Together, these figures point to a continued slow pace of layoffs and suggest the labour market remains resilient, in our view. With the Fed's employment mandate largely being met and its preferred inflation gauge well above the 2% target, we expect the central bank to remain on hold at its July meeting next week. However, we think policymakers may be inclined to hike rates in September or October if energy prices remain elevated or inflation expectations move higher.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}  

• Stocks close mixed with geopolitical tensions and trade policy in focus – North American equity markets closed mixed on Wednesday, with the TSX modestly higher while the S&P 500 and Nasdaq traded lower, as escalating tensions in the Middle East pushed oil prices higher and weighed on investor sentiment. In addition to the recent U.S. tariff announcements on Canadian imports, the Trump administration also announced plans to impose a 100% tariff on imported generic pharmaceuticals beginning in August 2028, citing efforts to reshore production. Trade policy will remain in focus this week, with the temporary Section 122 tariffs announced in February scheduled to expire on Friday. On the corporate front, investors will be watching for Alphabet’s latest update on AI-related spending when the company reports after the market close. Bond yields finished higher, with the 10-year GoC yield rising to 3.60% and the 10-year U.S. Treasury yield rising to 4.66%.
   
• Geopolitical and tariff uncertainty weighs on sentiment – Middle East tensions remain in focus for investors this week, with oil prices moving higher on Wednesday amid reports of limited progress in diplomatic negotiations between the U.S. and Iran. In addition to ongoing disruptions in the Strait of Hormuz, reports indicated that oil tankers carrying Saudi Arabian crude reversed course following the announcement of a blockade affecting the Bab al-Mandeb Strait. The strait had served as an alternative route for Saudi oil exports seeking to bypass disruptions in the Strait of Hormuz. Geopolitical uncertainty has coincided with several new U.S. tariff announcements. On Monday evening, President Trump announced an additional 50% tariff on roughly $20 billion of Canadian goods. The levies were announced under Section 338 of the Tariff Act of 1930 and are scheduled to take effect on August 19. The U.S. administration also announced plans to implement a 100% tariff on imported generic drugs beginning in August 2028, citing an effort to reshore pharmaceutical production. Meanwhile, the 10% global tariffs announced in February under Section 122 of the Trade Act of 1974—following the Supreme Court’s decision striking down tariffs imposed under the International Emergency Economic Powers Act—are scheduled to expire on Friday. The administration is expected to announce replacement duties under Section 301 of the Trade Act of 1974, which generally requires an investigation and a finding of unfair foreign trade practices. Although these developments have generated significant headlines, the past year illustrates the risks of adjusting investment strategies in response to policy changes. After declining 19% from February through early April 2025, the S&P 500 recovered those losses by the end of June and went on to post a total return of 17.9% for the year. This year, a correction of nearly 10% during the first quarter has been more than recouped, leaving stocks firmly higher year to date. In our view, the fundamental backdrop remains supportive of equity markets, and we advise investors to maintain a disciplined investment strategy rather than react to short-term headlines.
   
• AI spending trends in focus ahead of Alphabet earnings – Investors will receive an update on AI-related spending trends after today’s market close, when Alphabet is scheduled to report. We expect investors to focus closely on capital expenditure guidance to assess whether the robust pace of AI infrastructure spending can continue, as well as management’s commentary on whether these investments are generating tangible returns on capital. For the year, analysts expect Alphabet alone to record nearly $190 billion in capital expenditures. Including the other four major hyperscalers—Oracle, Meta, Microsoft and Amazon—aggregate capital expenditures for the group are expected to approach $750 billion this year. Elevated hyperscaler spending has supported profit growth among companies that supply the hardware needed for the AI buildout, particularly within the information technology sector. Technology earnings are expected to grow approximately 61% year over year in the second quarter. However, strong earnings growth is not expected to be limited to technology. Several large U.S. banks reported solid results last week, and the S&P 500 financials sector is expected to post second-quarter earnings growth of 18%. The materials sector is expected to generate profit growth of nearly 37%, while energy-sector earnings are projected to double, aided by higher energy prices. Additionally, although Canada’s second-quarter reporting season is still in its early stages, earnings for companies in the S&P/TSX Composite Index are expected to grow by more than 29% year over year. In our view, the economic environment should remain supportive of solid profit growth in the coming quarters. Stabilizing labour-market conditions, resurgent manufacturing activity and healthy consumer-spending trends should provide a constructive backdrop for equity markets.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}