• Markets close higher on cooler-than-expected CPI report – The TSX and U.S. equity markets advanced on Tuesday after the June U.S. consumer price index (CPI) report showed inflation cooling more than expected. Bond yields declined in response, with the 10-year Government of Canada yield at 3.57% and the 10-year U.S. Treasury yield near 4.58%, as markets appeared to reassess whether softer inflation may give the Federal Reserve more flexibility to hold interest rates steady in the near term. International equity markets also finished mostly higher across Asia and Europe. In energy markets, WTI oil prices rose to near $80 per barrel amid renewed tensions in the Strait of Hormuz. Meanwhile, the U.S. dollar weakened against major currencies, consistent with lower Treasury yields.
   
• U.S. CPI report shows inflation pressures easing –Headline U.S. CPI inflation slowed to 3.5% year-over-year in June, below forecasts for a more modest decline to 3.9%. The moderation was broad-based, with price pressures easing across several major categories, including shelter, food, energy and transportation. Core CPI, which excludes the more volatile food and energy components, cooled to 2.6% year-over-year, compared with expectations that it would remain unchanged at 2.9%. The breadth of the slowdown is particularly encouraging to us because it suggests that disinflation is extending beyond a narrow range of categories. We believe these readings should help alleviate concerns that elevated inflation is becoming entrenched and give the Fed greater flexibility as it evaluates incoming data. However, a single favourable report is unlikely to change the direction of monetary policy. The Fed will likely look for confirmation in upcoming inflation, employment and wage data. Attention now turns to the June U.S. producer price index (PPI) report – to be released Wednesday - which is expected to show headline wholesale inflation cooling modestly but remaining elevated at 6.4% year-over-year.
   
• Major banks kick off earnings season with solid results – Several major U.S. banks opened second-quarter earnings season this morning with stronger-than-expected results. Bank of America, CitiGroup, Goldman Sachs, J.P. Morgan, and Wells Fargo each exceeded analysts' earnings-per-share and revenue estimates. These results help provide an encouraging start to a season in which S&P 500 companies are forecast to deliver year-over-year earnings growth of 21%. Energy companies are expected to post the strongest growth, benefiting from 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 reduce the market's reliance on a small group of mega-cap companies and help reinforce the benefits of portfolio diversification.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Stocks close lower with geopolitical tensions in focus– North American equity markets closed lower on Monday, as escalating tensions between the U.S. and Iran sent oil prices higher and weighed on investor sentiment. Over the weekend, the U.S. carried out additional military strikes against targets in Iran, while Iran responded by launching strikes against U.S. facilities in several Gulf countries. U.S. President Trump also announced Monday that the U.S. would reinstate its blockade on Iranian shipping, contributing to a further rise in oil prices and bond yields as geopolitical tensions re-escalated. The TSX fell 0.3% for the day, while the S&P 500 declined 0.8%, weighed down by weakness in the technology sector—particularly among semiconductor companies. Technology weakness was particularly acute overseas, with South Korea’s KOSPI Index—which is heavily weighted toward semiconductor companies—falling nearly 9% overnight. Looking ahead, investors face a week packed with corporate earnings reports and economic data, with all eyes on U.S. bank earnings and the U.S. consumer price index (CPI) report for June tomorrow.
   
• U.S. price check ahead – U.S. inflation will be front and center for investors this week, with June consumer price index (CPI) data due tomorrow. Headline CPI is expected to post a modest monthly decline, likely driven by a fall in oil prices, while rising 3.8% on an annual basis. Core CPI, which excludes food and energy, is expected to increase 0.3% for the month and 2.9% from a year ago. The run-up in U.S. inflation over recent months has led investors to recalibrate their expectations for Federal Reserve interest-rate policy. Bond markets are now pricing in one Fed rate hike by the end of this year and an additional hike in 2027. While we acknowledge that upside risks to inflation have increased—particularly amid ongoing uncertainty in the Middle East—we believe the current backdrop warrants a patient approach from the Fed, and we expect it to remain on hold in the near term. U.S. core goods prices posted their lowest reading in more than a year in May, while recent home-price data point to further shelter disinflation ahead. Additionally, U.S. labour-market conditions have come into better balance and, in our view, are no longer a meaningful source of inflationary pressure. The number of job openings is now only slightly higher than the number of unemployed workers, compared with 2022, when job openings were nearly double the number of unemployed workers. Although geopolitical uncertainty remains a risk, our base case is that oil prices will remain well below their March peak of more than $100 per barrel. Against this backdrop, we believe the Fed can remain patient and keep rates on hold in the near term.
   
• Second-quarter earnings preview – In addition to U.S. inflation data, corporate earnings will be in focus for investors, with Bank of America, JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup all scheduled to report results tomorrow, kicking off the second-quarter earnings season. For the quarter, analysts expect the S&P 500 to post year-over-year earnings growth of 22%, driven by strong profit growth in the technology and energy sectors. Canadian corporations will ramp up their second-quarter earnings announcements over the coming weeks. Expectations point to strong profit growth in Canada as well, with analysts forecasting year-over-year earnings growth of more than 30% for the S&P/TSX Composite. For the full year, TSX earnings are expected to rise by 27% while S&P 500 earnings are expected to grow by 24%. We continue to believe the economic environment remains supportive of equities, underpinned by stable labour-market conditions and resurgent manufacturing activity. In our view, these conditions should support solid earnings growth over the coming quarters and provide a favourable environment for equity markets.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• 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.}