• 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.}

• Technology stocks lead markets higher – The TSX and U.S. equity markets closed higher on Thursday, as strong gains in technology stocks more than offset weakness across most other sectors. Sentiment toward the tech sector appeared to improve following better-than-expected earnings reports from NVIDIA, Salesforce, and CrowdStrike. The positive equity-market response came despite a modest rise in bond yields, with the 10-year Government of Canada yield near 3.70% and the 10-year U.S. Treasury yield at 4.67%. International markets were softer, as Asian equities finished mostly lower overnight and European shares broadly declined. In energy markets, WTI oil rose to nearly $84 per barrel following reports that Iran and Oman plan to share revenue from managing ship traffic through the Strait of Hormuz, again raising the prospect of tolls to pass the waterway. The U.S. dollar was little changed against major currencies.
   
• Strong NVIDIA results help reinforce the AI investment theme – AI chipmaker NVIDIA reported second-quarter revenue and earnings that exceeded expectations after Wednesday's market close. The company also issued guidance above consensus estimates, providing further evidence that demand for AI-related computing infrastructure remains strong. Better-than-expected results from customer relationship management software provider Salesforce and cybersecurity company CrowdStrike lifted both companies' shares and helped support sentiment across the broader technology sector. These results help reinforce our view that the AI infrastructure buildout remains a durable investment theme. More broadly, the strong quarterly earnings season is coming to a close. With 96% of S&P 500 companies having reported results, 86% have beaten analysts' estimates by an average upside surprise of 27%. Earnings growth has also been broad-based, with 10 of the 11 sectors reporting year-over-year gains. We believe this wider participation could help make the market's advance more durable by reducing its dependence on a small group of mega-cap companies. It may also help create a more supportive environment for diversified portfolios, including value-oriented and cyclical allocations.
   
• Jobless claims point to continued labour-market resilience – Initial jobless claims declined to 203,000 this past week, below expectations for 210,000. Continuing claims, which measure the total number of people receiving benefits, also fell to 1.78 million, compared with forecasts for 1.79 million. Together, the figures suggest that layoffs remain limited and that labour-market conditions are relatively healthy, even as the pace of hiring has slowed from earlier in the year. The unemployment rate stands at 4.1%, slightly below the Fed's longer-run projection of 4.2%, which is widely considered to be its estimate of full employment. With the Fed's employment mandate largely being met, officials should be able to focus more heavily on inflation, which remains well above the 2% target. Policymakers may be inclined to hike rates later this year or early 2027, though the data appear to at least support a higher-for-longer policy stance, in our view.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Markets close modestly lower – U.S. and Canadian equity markets closed modestly lower on Wednesday, with the Canadian TSX lagging the S&P 500 and tech-heavy Nasdaq. This comes as oil prices fell toward the lows of the week, with WTI crude oil down by around 0.5% to $82. Meanwhile, Treasury yields moved slightly higher, as the headline PCE inflation metric ticked higher in July to 3.7% year-over-year. Core PCE inflation, the Fed's preferred inflation gauge, came in at 3.3%, in line with forecasts but still well above the 2.0% target. Treasury yields ticked higher across the curve, with the 10-year yield up by about 0.01% to 4.65%. In our view, the 10-year yield is likely to remain in the 4.5% to 5.0% range for the remainder of the year, although a rapid move to the higher end of this range could weigh on stock market sentiment. Nonetheless, equity markets have been supported by strong earnings growth and resilient personal consumption, which was revised higher in the second-quarter U.S. GDP estimate.
   
• Personal consumption expenditure (PCE) inflation in line with estimates – Headline U.S. PCE inflation for the month of July was up 3.7% year-over-year, a tick higher than the 3.6% forecast and flat from last month's reading. Core PCE inflation, which excludes volatile food and energy, came in at 3.3%, in line with forecasts and last month's reading. Core PCE inflation is often considered the Fed's preferred inflation metric, and this remains well above the 2.0% target. Goods inflation decreased by 0.1% in today's reading, driven by a drop in gasoline and energy-related goods, as well as a decline in household equipment. Services inflation, however, rose by 0.3% for the month, as pricing in areas like financial services and insurance, as well as housing, moved higher. In our view, the stickier core inflation likely adds to the case for a rate hike by the Federal Reserve. However, we expect that upcoming consumer price index (CPI) inflation as well as labour-market data will be critical inputs ahead of the next September 16 FOMC meeting.
   
• Positioning portfolios in a higher-rate environment – We expect inflation uncertainty, U.S. fiscal concerns, increased bond issuance, and broadly resilient economic activity to keep interest rates elevated for some time. However, we expect yields to remain largely within a range of 3.5% to 4.0% for the 10-year GoC yield and 4.5% to 5.0% for the 10-year U.S. Treasury yield through year-end. Despite Canada’s stronger fiscal backdrop, its close economic and financial ties with the U.S. could allow upward pressure on U.S. yields to spill over into Canada, as we saw last week. While this may limit meaningful near-term price appreciation, higher yields have improved the longer-term appeal of investment-grade bonds and reinforced their strategic role in a well-diversified portfolio, in our view. Against this backdrop, we believe the outlook over the next 12 months favours equities over fixed income, particularly given the support from strong profit growth and healthy economic activity. Within equity markets, we acknowledge the potential for a period of near-term consolidation after what's been a solid move higher in 2026. August and September have historically been seasonally weaker months for stocks, and uncertainty could increase as the U.S. midterm elections approach, but periods of weakness may provide opportunities to add to equities, in line with your investment goals and risk tolerance. We specifically favour U.S. large-cap stocks, which we believe offer an attractive combination of quality, exposure to artificial intelligence, and sensitivity to continued U.S. economic resilience. We also favour Canadian small- and mid-cap stocks, which we think could benefit from elevated commodity prices and improving domestic economic activity, along with emerging-market stocks, which we believe provide international exposure to strong profit growth tied to the AI buildout, while trading below their 10-year average forward price-to-earnings multiple.

Mona Mahajan;
Investment Strategy

^{Source for all data: FactSet.}