• Stocks edge higher following domestic employment data – North American equity markets closed higher on Friday following the June labour-force survey, which showed domestic employment rose by 18,000 for the month while the unemployment rate fell to 6.5%. The TSX logged a 0.3% gain for the day and rose by roughly 1% for the week, while the S&P 500 rose by 0.4% today, logging a weekly gain of 1.2%. Bond yields were little changed, with the 10-year GoC yield holding steady at around 3.51%, while the 10-year U.S. Treasury yield finished at 4.56%. Geopolitical tensions remain in focus after a re-escalation in military activity between the U.S. and Iran this week. However, with no incremental news flow on the conflict, oil prices were little changed, with WTI crude oil closing just below $72 per barrel.
   
• Labour market holds steady – The June Labour Force Survey showed that domestic employment conditions held steady for the month, with employment rising by 18,000 and the unemployment rate falling to 6.5%. Looking under the surface, employment growth was strongest in wholesale and retail trade, along with accommodation and food services, perhaps reflecting additional hiring related to the FIFA World Cup. Conversely, manufacturing employment contracted by 17,000 for the month and is now lower by 61,000 from its recent January 2025 peak, as the sector continues to adjust to protectionist U.S. trade policy and uncertainty surrounding CUSMA negotiations. Despite softness in manufacturing, as well as potential one-off boosts related to the FIFA World Cup, we view June’s employment data as an encouraging sign of stabilization, particularly following a strong month of job growth in May. We expect the unemployment rate to remain contained through year-end, in part due to slowing population growth stemming from tighter immigration policy, which has reduced the pace of job gains needed to keep the unemployment rate steady. However, a gradual improvement in domestic economic activity through year-end could help limit layoffs and help keep the unemployment rate contained.
   
• Higher interest rates weighing on U.S. housing – After a surge in activity coming out of the pandemic, driven by low borrowing costs and households that were flush with cash, U.S. housing-market activity has stagnated in recent years as households adjust to higher home prices and higher borrowing costs. We saw further evidence of this yesterday, with U.S. existing home sales for June falling by 2.4% for the month, below expectations, albeit modestly higher on a year-over-year basis. Since 2023, monthly existing home sales have run at an annualized rate of roughly 4.1 million, well below the 2015–2019 average of roughly 5.4 million. While this could, in part, reflect low levels of inventory for existing homes in recent years — as existing homeowners have been reluctant to sell homes with below-current-market mortgage rates — U.S. new home sales show a similar pattern, trending roughly sideways since 2023. While we don’t expect borrowing costs to return to 2021 levels, we think there is hope for improvement on the affordability front, particularly as U.S. annual wage growth has outpaced home price growth, as measured by the S&P/Case-Shiller U.S. National Home Price Index, for 15 consecutive months. Should this trend continue over time, it could provide improvement at the margin for U.S. housing-market activity. From an economic standpoint, while housing-market activity could remain subdued this year, the good news, in our view, is that we’ve seen solid trends in other drivers of growth, such as household consumption and business investment, which we believe will be the primary drivers of economic growth over the remainder of the year.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Stocks edge higher – North American equity markets traded higher Thursday, with the TSX supported by the materials sector amid higher precious metals prices, while U.S. stocks were bolstered by gains in the technology sector. Overseas, markets were broadly higher as well, with Asian equities led by a gain of more than 1% in Japan’s Nikkei, while European markets also traded higher. On the economic front, U.S. initial jobless claims for last week came in slightly below expectations at 215,000, pointing to continued stability in the U.S. labour market. Additionally, U.S. existing home sales for June were weaker than expected, falling 2.4% for the month, as the recent run-up in longer-term U.S. interest rates has likely weighed on housing activity. Bond yields finished the day slightly lower, with the 10-year GoC yield falling to 3.52% and the 10-year U.S. Treasury yield settling around 4.55%. In commodity markets, oil prices closed lower, though investors continue to monitor this week’s geopolitical flare-up between the U.S. and Iran, which has helped push WTI crude oil higher by more than 4% for the week.
   
• Positioning portfolios amid the recent rotation – After a strong run in U.S. technology stocks following the March lows, markets have experienced a rotation into more value-oriented sectors since the beginning of June. Health care, financials and industrials have been among the top performers of the S&P 500 over this period, while technology has lagged, declining by roughly 5% through yesterday's close. Even so, the sector remains up more than 17% year-to-date. In our view, the weakness in technology reflects a combination of profit-taking after a sharp rally from the March lows and growing scrutiny around whether the current pace of AI-related capital spending can be sustained — and ultimately generate an adequate return — particularly as elevated memory prices increase the cost of the AI buildout.
  
  Despite these concerns, fundamentals within the technology sector remain solid. Earnings growth is expected to remain robust in 2026, and there are limited signs that companies are meaningfully slowing AI-related spending. In fact, estimates continue to point to substantial capital spending tied to AI infrastructure, while analysts expect technology and communication services to grow profits by 52% and 23% respectively in 2026. Against this backdrop, we remain overweight technology-heavy asset classes such as U.S. large-cap stocks and emerging-market equities. However, we recommend balancing this exposure with overweights to more economically sensitive areas, including Canadian small- and mid-cap stocks. At the U.S. sector level, we continue to recommend an overweight to communication services, which has lagged year-to-date but offers exposure to several AI-related beneficiaries. We also favour industrials, which should benefit from continued infrastructure spending and an ongoing rebound in manufacturing activity.
   
• U.S. jobless claims remain contained, signaling steady labour-market conditions – U.S. initial jobless claims for last week came in at 215,000, slightly below expectations of 220,000 and modestly lower than the prior reading of 217,000. So far in 2026, initial claims have averaged roughly 213,000, well below the 30-year median of more than 300,000. This suggests that layoffs remain contained, a view reinforced by the unemployment rate declining to 4.2% in last Friday’s June employment report. While 2025 was characterized by both low hiring and low firing — with U.S. nonfarm payroll growth averaging roughly 10,000 per month and initial jobless claims averaging 226,000 — labour-market conditions have improved this year. Job growth has strengthened, while both the unemployment rate and initial claims remain contained. Over the past three months, U.S. nonfarm payrolls have increased by an average of 111,000, compared with an average monthly gain of 92,000 year-to-date. Overall, we would characterize labor-market conditions as stable. Low unemployment and modest hiring growth should continue to help support economic activity over the remainder of the year. Tomorrow will provide a read on domestic employment trends, with the June labour-force survey expected to show employment growth of 20,000 for the month.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Stocks fall amid Middle East tension - Geopolitics were back in the spotlight today after the U.S. President declared the ceasefire between the U.S. and Iran over, raising the prospect of an end to peace talks and the potential for renewed fighting between the two countries. The U.S. launched a fresh wave of strikes and revoked Iranian oil waivers, while Iran retaliated by striking military bases in Kuwait and Bahrain. In response, oil prices jumped 4.8% to about $74 per barrel, up from $68.5 at the start of the week, but still well below the $120 level seen at the start of the conflict in March. Canadian stocks finished lower, though the pullback was contained, with the Nasdaq ending largely unchanged. Government bond yields rose as the jump in oil prices risks reigniting inflation concerns.
   
• Similar risks, different reaction? - The spike in oil prices and higher bond yields drove a near 10% correction in the first half of the year, but they also underscored the economy’s resilience to these shocks. Renewed geopolitical risks may fuel some near-term risk-off sentiment, but we do not expect investors to react to this round of uncertainty in the same way, for several reasons. First, neither the U.S. nor Iran appears inclined toward a prolonged conflict, in our view, and investors have already seen how reacting to fast-moving headlines can lead to suboptimal portfolio outcomes. Second, we think it would likely take a much larger and sustained rise in oil prices to materially alter the outlook for the economy and corporate earnings. Finally, oil supplies have begun to recover, providing a renewed buffer for energy markets, while the improving labour market helps support household incomes.
   
• Tech rotation adds to risk-offsentiment - After the U.S. semiconductor index posted its best quarter on record, the group has turned more volatile, and investors are increasingly questioning the pace and payoff of AI-related capex. Today, semiconductor stocks rebounded, helping the Nasdaq, even as the high-flying Korea equity index closed overnight 20% off its June peak. We are seeing signs of fatigue, with end-user demand for AI becoming more price sensitive and the market starting to penalize companies that ramp spending too aggressively. That said, there are still no clear signs of a meaningful slowdown in demand or investment. The tech sector is expected to deliver the highest revenue growth of all 11 S&P 500 sectors in the second quarter, along with the second-highest earnings growth rate at 63%. However, given the parabolic moves, elevated concentration risk, and the outsized weight of technology in the index, we think investors should complement their exposure with more differentiated sources of return.
  
  Our preferred approach is a barbell strategy for U.S. equities: maintain exposure to tech, but balance it with cyclicals. For cyclical exposure, we favour U.S. mid-caps and the industrials sector, which should benefit from infrastructure spending, onshoring trends, and continued adoption of artificial intelligence, automation, and robotics, in our view. For AI exposure outside traditional tech, we favour Communication Services. We think the sector offers meaningful participation in AI beneficiaries, but with less stretched valuations relative to history and still-robust earnings growth. In our view, this provides a more balanced way to express the AI theme without relying solely on the most crowded areas of the market.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.} 

• Equities close mostly lower amid tech weakness and renewed geopolitical tension – Canadian equity markets were little changed while U.S. equity markets traded lower on Tuesday, as weakness in technology shares weighed on U.S. indices. Semiconductors were a notable laggard within the technology sector, with the PHLX Semiconductor Index falling more than 4% on the day. The decline followed preliminary second-quarter results from Samsung Electronics, which reported a record quarter; however, the strong results were overshadowed by concerns about whether the robust pace of spending on components needed to build out AI infrastructure can continue at the same rate. The TSX outperformed, supported by strength in the energy sector as oil prices finished nearly 5% higher. The move in oil prices followed renewed geopolitical tensions after a military flare-up between the U.S. and Iran in the Strait of Hormuz. The 10-year GoC yield was little changed on the day, finishing at 3.41%, while the 10-year U.S. Treasury yield traded higher to 4.55%.
   
• Second-quarter earnings season on the horizon – After a strong first half of 2026, investor attention will shift to second-quarter earnings season, which begins next week with several large U.S. financial institutions scheduled to report results. Expectations are for the robust profit growth seen in the first quarter to continue, with consensus estimates calling for S&P 500 earnings growth of nearly 22% year-over-year in the second quarter. At the sector level, information technology and energy are expected to drive much of the growth. Technology-sector earnings are projected to increase by more than 60%, supported by continued investment in AI infrastructure and related technologies. Meanwhile, energy-sector profits are expected to more than double from a year ago, benefiting from higher oil prices during the second quarter. For the full year, S&P 500 earnings are forecast to grow 24% year-over-year. If realized, this would mark the strongest annual profit growth since 2014, excluding the post-pandemic recovery period. We continue to believe the economic backdrop remains supportive for equities, underpinned by stable labour-market conditions and improving manufacturing activity. These factors should support healthy earnings growth in the quarters ahead and provide a favourable environment for equity markets, in our view.
   
• Midyear performance check-in – Global equity markets have started 2026 on a strong footing, with the TSX higher by 12.3% and the S&P 500 gaining nearly 15%, including dividends, through yesterday's close. These healthy year-to-date returns have come despite an oil price shock and heightened geopolitical uncertainty during the second quarter, as strong corporate earnings growth and resilient economic activity have continued to support investor sentiment. Gains have also been broad-based beyond the TSX and S&P 500. U.S. mid- and small-cap equities have outperformed, with the Russell 2500 up by nearly 27% through yesterday's close. Overseas markets have also delivered solid returns, with developed-market equities advancing more than 15% and emerging-market stocks rallying nearly 29%, with performance in emerging markets supported by technology-heavy regions such as Taiwan and South Korea, which have benefited from robust AI-related spending trends. Given resilient economic activity and strong corporate earnings growth, we believe the backdrop for equities remains favourable. As part of our opportunistic asset allocation guidance, we recommend investors maintain an overweight allocation to equities relative to bonds, with a preference for U.S. large-cap stocks, Canadian small- and mid-cap stocks and emerging-market equities.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Markets start the week mixed as tech stocks rebound – The TSX closed lower, while U.S. equity markets advanced on Monday, with the Dow Jones Industrial Average reaching a record high. Bond yields moved lower, with the 10-year Government of Canada yield at 3.42% and the 10-year U.S. Treasury yield near 4.47%. In international markets, Asia finished mixed overnight, while Europe was broadly lower. In energy markets, WTI oil prices were little changed, remaining below $70 per barrel, following the OPEC+ decision to increase output. Meanwhile, the U.S. dollar strengthened modestly against major currencies.
   
• Services indexes mixed: The final S&P Canada Services Purchasing Managers' Index (PMI) dipped to 47.1 in June from 50.6 in May as new business volume was impacted by higher prices and geopolitical uncertainty. While the decline marks the fifth reading below 50 reflecting contraction this year, there were some encouraging elements beneath the headline. Employment increased modestly, suggesting firms remain willing to add capacity despite softer demand, while input cost and selling price inflation both eased. The final S&P U.S. Services Purchasing Managers' Index (PMI) rose to 51.2 in June from 50.7 in May, supported by an increase in new business. While the reading narrowly missed estimates, it remained above the key 50.0 threshold signaling expansion for a third consecutive month. Price pressures eased but remained elevated, reflecting the impact of tariffs and higher fuel costs. The Institute for Supply Management (ISM) Services PMI slowed to 54.0 in June, as expected, from 54.5 in May. The moderation was driven by slower growth in business activity, new orders and supplier deliveries, partly mitigated by an improvement in employment, which returned to expansion. Overall, we view these readings positively. Continued expansion in services — the largest segment of the economy — should help support broader growth and labour-market stability.
   
• Bond yields edge lower – Bond yields moved lower, with the 10-year Government of Canada yield at 3.42% and the 10-year U.S. Treasury yield at 4.47%. Today's move marked a modest reversal of the recent trend higher as markets have priced in expectations that the Fed's next move could be a rate hike. The Fed's preferred inflation gauge has risen in recent months, partly reflecting higher energy prices. The headline figure moved above 4% in May, while core inflation increased more moderately. With both measures meaningfully above the 2% target, the Fed likely has little room to ease policy, in our view. We also believe the resilient labour market gives policymakers more room to prioritize inflation risks. The unemployment rate remains contained at 4.2%, in line with the Fed's long-run projection, which is widely viewed as its estimate of full employment. While markets reflect some likelihood of a rate hike, we believe a prolonged pause is the most likely outcome. The Fed is unlikely to ease while inflation is moving higher, but there is not yet consensus for tightening among policymakers. Even if the Fed delivers a single rate hike, we believe markets would likely view it as a mid-cycle adjustment, rather than the start of a renewed tightening cycle, provided inflation expectations remain contained.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}