• 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.}

• Markets close higher as oil, yields pull back – The TSX reached a record high, and U.S. equity markets also advanced on Tuesday, supported by a continued decline in bond yields. The 10-year Government of Canada yield edged down to 3.63%, and the 10-year U.S. Treasury yield fell to 4.63%, extending Monday's move lower and offering some relief to interest-rate-sensitive areas of the market. Technology and communications stocks led gains, while the energy sector underperformed as oil prices declined. International markets were also positive, with Asian equities finishing higher overnight and European shares gaining. WTI oil was down near $81 per barrel following reports that the U.S. plans to return diplomats to the Middle East. This development may have reduced some of the geopolitical risk premium embedded in oil prices. The U.S. dollar also weakened modestly against major currencies.
   
• Employment data shows firmer job growth – U.S. private employers added an average of 11,750 jobs per week for the four weeks ending August 8, up from 9,500 in the previous report, according to ADP. This marks the second consecutive report showing a reversal of the decline from the recent peak in May. Additional data will be needed to determine whether hiring is stabilizing, but a continuation of the trend could help support near-full employment. The broader labour market appears to be roughly balanced, in our view. The unemployment rate remains contained at 4.1%, while 7.4 million job openings continue to exceed the 6.9 million unemployed workers. Together, these figures suggest that labour demand remains healthy, even as hiring has slowed from the pace earlier in the year. Continued employment and wage gains should help support household income and consumer spending, key pillars of the broader economy.
   
• Consumer confidence dips as expectations weaken – The Conference Board's U.S. Consumer Confidence Index declined for the second consecutive month in August, falling to 89.4 and coming in below the consensus forecast of 90.2. The underlying details were mixed: consumers' assessment of current business and labour-market conditions rose by 6.8 points, after three consecutive monthly declines. Meanwhile, the short-term outlook for income, business and labor conditions fell by 5.8 points. Written responses indicated that concerns over the economy centered on prices and inflation, geopolitical tensions, trade, and jobs. The divergence between improving views of current conditions and a weaker outlook may suggest that consumers are more comfortable with their present circumstances but are becoming more cautious about the near-term future. While this caution could start to weigh on consumer spending, we believe the balanced labour market and further progress in bringing inflation down could help improve sentiment.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks end mixed to start the week – The TSX managed to eke out a small gain while global stock market indexes ended modestly lower, with semiconductor stocks lagging ahead of NVIDIA's closely watched earnings report on Wednesday. Long-term government yields declined lower as bonds rebounded from last week's sell-off, supported by reports that the U.S. Treasury Department could utilize its Treasury General Account to help fund buybacks and provide additional liquidity to the market. In commodities, WTI crude oil fell 2% to $85 per barrel as Treasury Secretary Bessent unveiled a new global sanction plan to isolate Iran's economy. On the trade front, U.S.-Canada negotiations broke down on Friday, triggering new U.S. tariffs of 50% on roughly $20 billion of Canadian goods and prompting the government to pledge dollar-for-dollar retaliatory measures beginning September 8. In turn, the U.S. president threatened to double the tariffs on Canadian vehicles and parts to 50%, effective January 1. The developments weighed on the Canadian dollar, while gold climbed to its highest level in three months as investors sought safety amid rising geopolitical and trade uncertainty. Overall, markets appear to be balancing trade and geopolitical concerns against easing bond yields and anticipation surrounding NVIDIA's earnings, which could provide an important gauge of AI-related spending and broader market sentiment.
   
• New tariffs take effect as U.S.-Canada trade talks break down – Trade tensions between the U.S. and Canada escalated as the latest round of U.S. tariffs moved forward following the breakdown of trade negotiations. The new measures impose a 50% tariff on roughly $20 billion of Canadian exports, equivalent to about 5% of Canada's exports to the U.S. While the headline tariff rate is significant, the broader economic impact is likely to be more contained. More than 80% of Canadian exports would still enter the U.S. duty-free under CUSMA exemptions, and the affected products represent only a small share of overall Canadian GDP. That said, the impact will be felt unevenly. Industries including plastics, electrical equipment, furniture, wood products, and certain manufacturers with heavy U.S. exposure are likely to face the greatest pressure, particularly in Ontario, Quebec, and British Columbia. Beyond the direct economic costs, the bigger concern may be the continued unpredictability of U.S. trade policy, which can weigh on business confidence and investment decisions. Even so, Canadian firms have shown increasing resilience after more than a year of tariff threats, with signs that investment and sentiment have begun stabilizing despite an uncertain trade backdrop.
  
  From an economic perspective, our view is that the new tariffs represent a headwind but are not large enough to derail Canada's recovery, particularly given the government's pledge to provide financial support for businesses caught in the crossfire. The added uncertainty also increases the likelihood that the Bank of Canada remains on hold, in our view, as tariff-related risks to growth offset some of the inflationary pressures that could emerge from the dollar-for-dollar retaliatory measures announced by Prime Minister Mark Carney, which are scheduled to take effect on September 8 and may still leave room for further negotiations.
   
• For investors, market fundamentals remain more important than trade headlines - The TSX has relatively large weights in energy, and precious metals, which have recently benefited from geopolitical tensions, firmer commodity prices, and a softer U.S. dollar. In that sense, Canadian equities may provide a degree of diversification and a natural hedge against some of the policy uncertainty emanating from Washington. While trade headlines could create periods of volatility, we believe investors should remain focused on the underlying fundamentals, which continue to point to a resilient Canadian economy and earnings backdrop despite a more challenging trade environment.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}