Thursday 9/24/2026 p.m.

• Stocks fluctuate as inflation anxiety persists - Equity markets ended little changed as oil prices rose and long-term bond yields continued to climb to their highest levels in more than two decades. WTI crude finished 3% higher, while Brent stayed above $100 per barrel, though off their session highs after report of talks for a phased reopening of the Strait of Hormuz. Refined products have risen even more sharply than crude in recent weeks, with diesel prices surging to record highs. Given diesel's importance to transportation, construction, and agriculture, the move is adding to broader inflation concerns. On the positive side, U.S. Treasury Secretary Bessent announced that the U.S. and China have agreed to extend their trade truce by two months, through January 10, as both sides pursue a broader agreement. The extension comes ahead of planned meetings between the two countries' leaders at the APEC summit in November and the G20 summit in December. On the corporate front, Oracle shares fell more than 3% after reports that the company invoked force majeure provisions on a large New Mexico data center project following significant regulatory and permitting setbacks. The move is intended to limit the company's financial exposure if the facility fails to come online as planned in 2028. The news highlights the financing and execution risks associated with the AI infrastructure buildout amid rising costs and growing political scrutiny of large-scale data centers.
   
• Higher yields are becoming a more meaningful headwind - The biggest challenge facing markets this week is the sharp rise in long-term bond yields to multi-decade highs, with the 30-year Government of Canada yield climbing to 4.27%, near its highest level since 2007. Several factors in the U.S. are driving the move higher, and Canadian bonds are moving in sympathy. These include 1) rising oil prices amid ongoing conflict in the Middle East, 2) increasingly hawkish Fed rhetoric as more policymakers signal support for additional rate hikes, 3) weak demand at yesterday's U.S. Treasury auction, and 4) stronger-than-expected U.S. economic data that reinforce the higher-for-longer rate narrative. While solid economic growth and healthy corporate fundamentals suggest interest rates are not yet restrictive enough to derail the expansion, the rapid increase in yields and elevated bond market volatility are creating a more meaningful headwind for equities. Any easing of geopolitical tensions that helps relieve pressure on energy prices could go a long way toward stabilizing the bond market, in our view. Until then, we believe upward pressure on yields is likely to persist as expectations for additional Fed tightening remain elevated.
   
• Solid economic activity and earnings remain pillars of support - Amid rising bond market volatility, it is important to recognize that yields are increasing for both negative reasons, such as inflation concerns, and positive reasons, including stronger growth that justifies higher interest rates and suggests Fed policy is not overly restrictive. Yesterday's U.S. PMI data showed business activity expanding at its fastest pace since 2021, pointing to real GDP growth running at roughly a 5% annualized pace. While PMI surveys may somewhat overstate the economy's underlying strength, they are broadly consistent with other indicators suggesting growth has accelerated in recent quarters alongside improving labor market trends. In Canada, the larger-than-expected fall in retail sales in July came with an estimate for a solid rebound in August, leaving GDP growth estimates for the third quarter at a solid 2% annualized. This backdrop should provide a solid foundation for corporate profits to continue growing. As investors look ahead to the start of third-quarter earnings season in the coming weeks, S&P 500 and TSX earnings are on track for one of the strongest periods of growth outside of post-recession recoveries, with profits for the year expected to increase 36% and 25%, respectively. Although valuations have compressed this year, robust earnings growth has more than offset that headwind. The bottom line, in our view, is that rising yields and higher oil prices are testing market resilience, but strong economic momentum and broad-based earnings growth continue to serve as powerful sources of support.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}