• Stocks move higher, ending the quarter on a strong note – U.S. and Canadian equities were higher on Tuesday with the tech-heavy Nasdaq leading the gains, after a sharp sell-off last week. More broadly, the S&P 500 closed the quarter higher by about 15%, the highest quarterly return since 2020. Underneath the surface, the S&P 500 technology sector has led the way higher this quarter, up an impressive 31%, followed by the industrials sector, up nearly 15%. However, more recently, over the last month, we have seen a bit of rotation, with tech and AI-driven sectors down for the month, while areas like healthcare, industrials, and financials have moved higher. In our view, this rotation into more cyclical parts of the market could have legs, especially if oil prices continue to head toward levels prior to the Iran war, and if the U.S. labour market and economic growth continue to remain resilient. We would recommend both U.S. large-cap stocks, which offer exposure to the tech and AI story, and U.S. mid-cap stocks, which could continue to do well if the broadening theme delivers.
   
• Biggest quarterly gain since 2020 - Global stocks posted their strongest quarter since 2020, though the TSX lagged as oil prices normalized. While geopolitical uncertainty drove a near-correction earlier in the year, subsequent de-escalation has helped lift sentiment and has helped reinforce already-solid economic and corporate fundamentals. In particular, strength in U.S. corporate profits has been the central driver of market resilience and gains this year. Although valuations have edged lower, with the price-to-earnings ratio contracting by about 10%, forward earnings have jumped roughly 18% since the start of the year. Solid economic growth paired with the AI investment boom and rising profitability has been the winning recipe for stocks, and that dynamic appears poised to continue as the next earnings season unofficially kicks off on July 14 with the banks. Expectations call for S&P 500 revenue growth of about 12% (6.7% for the TSX) and earnings growth of 22% (31% for the TSX).
   
• Jobs in focus this week - The spotlight this holiday-shortened week will be GDP in Canada and a series of U.S. employment data releases, starting with May job openings on Tuesday, followed by ADP private payrolls on Wednesday and the June payrolls report on Thursday (Canada's employment report is scheduled for July 10). Taken together, the data should show a labour market that continues to improve, while not running so hot as to raise overheating concerns. Consensus is looking for 113,000 job gains, a slowdown from the prior month but still strong enough to keep the unemployment rate steady at 4.3%. Leisure and hospitality employment jumped in May, supported by the FIFA World Cup and other major events, but gains have been broad-based across sectors in recent months. Wage growth will also be closely watched, given its implications for both inflation and worker incomes, which have been pressured by rising energy prices. With oil prices down sharply over the past two weeks, there is scope for an improvement in real earnings growth, in our view. At 3.5% wage growth, conditions remain consistent with the Fed’s 2% inflation target, particularly given strong productivity gains that are keeping unit labour costs in check.

Mona Mahajan;
Investment Strategy

^{Source for all data: Bloomberg.} 

• Stocks mixed as tech rebound lifts U.S. market – The TSX posted a modest loss even as U.S. equities rose, with the Dow Jones Industrial Average reaching a fresh record, supported by a rebound in technology stocks following last week’s AI-driven pullback. The three growth-oriented U.S. sectors—communication services, consumer discretionary, and technology—led gains. Alphabet shares rose 5% on their first trading day as a Dow member, replacing Verizon. WTI crude oil prices moved back above $70 after falling 9% last week to pre-war levels. Over the weekend, there was a flare-up between the U.S. and Iran, but both sides agreed yesterday to halt hostilities and resume talks this week, suggesting limited appetite for a renewed conflict. On the corporate front, Comcast said it plans to separate its media businesses from its cable TV and internet operations, spinning off NBCUniversal and Sky into a new publicly traded company. The stock traded up 5% on the news. Elsewhere, GoC yields fell and U.S. Treasuries were little changed after the Supreme Court reinforced the Fed's independence from the White House by ruling that Fed Governor Lisa Cook can stay in her job while lower courts continue to debate the case.
   
• On track for biggest quarterly gain since 2020 - Global stocks are on pace for their strongest quarter since 2020, though the TSX lagged as oil prices normalized. While geopolitical uncertainty drove a near-correction earlier in the year, subsequent de-escalation has helped lift sentiment and has helped reinforce already-solid economic and corporate fundamentals. In particular, strength in U.S. corporate profits has been the central driver of market resilience and gains this year. Although valuations have edged lower, with the price-to-earnings ratio contracting by about 10%, forward earnings have jumped roughly 18% since the start of the year. Solid economic growth paired with the AI investment boom and rising profitability has been the winning recipe for stocks, and that dynamic appears poised to continue as the next earnings season unofficially kicks off on July 14 with the banks. Expectations call for S&P 500 revenue growth of about 12% (6.7% for the TSX) and earnings growth of 22% (31% for the TSX).
   
• Jobs in focus this week - The spotlight this holiday-shortened week will be GDP in Canada and a series of U.S. employment data releases, starting with May job openings on Tuesday, followed by ADP private payrolls on Wednesday and the June payrolls report on Thursday (Canada's employment report is scheduled for July 10). Taken together, the data should show a labour market that continues to improve, while not running so hot as to raise overheating concerns. Consensus is looking for 113,000 job gains, a slowdown from the prior month but still strong enough to keep the unemployment rate steady at 4.3%. Leisure and hospitality employment jumped in May, supported by the FIFA World Cup and other major events, but gains have been broad-based across sectors in recent months. Wage growth will also be closely watched, given its implications for both inflation and worker incomes, which have been pressured by rising energy prices. With oil prices down sharply over the past two weeks, there is scope for an improvement in real earnings growth, in our view. At 3.5% wage growth, conditions remain consistent with the Fed’s 2% inflation target, particularly given strong productivity gains that are keeping unit labor costs in check.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.} 

• Stocks finish mixed – North American equity markets were mixed on Friday, recovering from steeper losses at the open. The TSX posted a modest gain for the day while all three major U.S. averages were modestly lower. Throughout the week, investors digested announcements from Apple and Microsoft regarding price increases on select hardware products amid rising memory costs, fueling concerns that higher prices could dampen consumer demand and weighing on the S&P 500 technology sector, which lost over 5% this week. Outside of technology, market performance was more constructive, with U.S. small- and mid-cap stocks posting modest gains for the week and the TSX finishing roughly flat. In fixed income markets, the 10-year GoC yield was little changed at 3.39%, while U.S. Treasury yields edged lower, with the 10-year yield ending the session near 4.37%. Commodity markets were also softer, as WTI crude oil settled around $69 per barrel.
   
• Taking stock of the recent pullback in tech – While North American equity markets finished near the flatline on Friday, both the S&P 500 and Nasdaq posted weekly declines amid weakness in technology stocks. The TSX fared better, finishing the week roughly flat. This week, Apple announced plans to raise prices on several products, including Macs and iPads, with expectations that iPhone prices could also move higher in the months ahead amid rising memory costs. Microsoft likewise announced price increases for Xbox products, fueling concerns that higher prices could weigh on demand for technology hardware. As companies look to pass along rising input costs to consumers, investors appear to be reassessing the durability of the strong momentum that has propelled technology stocks higher over the past several months.
  
  In our view, maintaining perspective during this pullback is important. Since the end of March, the S&P 500 has gained more than 15%, while the Nasdaq Composite has advanced over 20%. Semiconductor stocks—which have been among the primary beneficiaries of the AI buildout and growing demand for memory and storage—have rallied more than 90% over the same period. Against this backdrop, a period of consolidation appears both reasonable and healthy, in our view.
  
  More importantly, we believe the fundamental backdrop for equities remains supportive in the months ahead. While we would not characterize markets as cheap, it is worth noting that both the Nasdaq Composite and S&P 500 trade at lower forward price-to-earnings multiples today than they did at the start of the year. This highlights that this year's gains have been driven by earnings growth rather than multiple expansion.
  
  On that front, TSX and S&P 500 earnings are on track to grow by more than 20% this year. At the same time, economic activity has shown signs of resilience, supported by improving labour-market conditions and renewed strength in the manufacturing sector. Taken together, we believe the outlook for equities remains constructive. That said, diversification remains critical, in our view. As investors navigate the remainder of the year, we continue to recommend maintaining balance across both growth- and value-oriented investments.
   
• U.S. dollar has rebounded – While still well below its recent January 2025 peak, the ICE U.S. Dollar Index—which measures the value of the U.S. dollar against a basket of developed-market currencies including the Canadian dollar—has climbed to its highest level since May 2025. In our view, resilient U.S. economic data and a hawkish repricing of Federal Reserve rate expectations have supported the move higher. This week, preliminary data from the S&P Global U.S. Manufacturing PMI showed activity expanded at the fastest pace since May 2022, underscoring the U.S. economy's resilience. At the same time, persistently elevated U.S. inflation readings have prompted markets to price in the possibility of Fed rate hikes this year, in contrast to expectations for interest-rate cuts entering the year. Reflecting this shift, yield spreads between U.S. 2-year Treasury securities and comparable government bonds in Canada, Germany and Japan have widened to near year-to-date highs. Higher relative bond yields in the United States can support the U.S. dollar by attracting global capital flows, increasing demand for dollar-denominated assets and, in turn, the currency itself. While currency movements are notoriously difficult to forecast, we believe the U.S. dollar's recent rally could lose momentum in the months ahead. We believe shifting Fed expectations are reflected in current pricing, while improving economic conditions abroad—potentially aided by a lower oil-price environment—could help provide support for overseas currencies relative to the dollar.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Markets close mixed as consumer stocks pull back – The TSX finished higher, while U.S. equity markets were down modestly, weighed down by weakness in the consumer discretionary and consumer staples sectors. Bond yields were also mixed, with the 10-year Government of Canada yield rising to 3.39% and the 10-year U.S. Treasury yield declining to 4.39%. In energy markets, WTI oil rose on renewed tensions in the Strait of Hormuz, though prices remain well below their recent peak. If sustained, lower oil prices would likely help ease inflation concerns and support consumer sentiment. However, geopolitical risks remain fluid and could continue to be a source of volatility. Meanwhile, the U.S. dollar weakened against major currencies but has remained broadly rangebound in recent trading.
   
• GDP revision shows stronger-than-expected growth– An updated GDP report showed that the U.S. economy expanded at 2.1% annualized rate in the first quarter, above expectations that the prior 1.6% estimate would remain unchanged. The upward revision was driven primarily by a smaller drag from imports, which are subtracted from GDP. Partially offsetting that improvement, consumer spending was revised lower, pointing to some moderation in household demand and perhaps contributing to today's pullback in consumer stocks. Higher domestic investment provided some additional support, as business spending remains strong. Overall, the report suggests that the economy entered the second quarter with better momentum than previously thought, recovering from the fourth-quarter slowdown that was partly driven by the government shutdown.
   
• Fed's preferred inflation measure remains elevated – Headline U.S. personal consumption expenditures (PCE) price index inflation rose to 4.1% year-over-year in May, matching forecasts. Energy prices were a major contributor, up 24.3% from a year earlier, while goods prices also continued to show pressure. Core PCE inflation, which excludes the more-volatile food and energy categories, ticked up to 3.4%, slightly above estimates pointing to 3.3%. With both headline and core inflation moving further above the Fed's 2% target, we expect policymakers to remain on hold as they have since the start of the year. A resilient labour market and stronger-than-expected GDP growth should give policymakers more room to prioritize inflation risks, in our view. If the recent pullback in energy prices persists, the Fed may be reluctant to respond to what could prove to be a temporary oil-supply shock. However, if higher energy costs feed into broader goods and services inflation — or if long-term inflation expectations move higher — we think policymakers may be more inclined to keep rates higher for longer and possibly consider a hike.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.} 

• Stocks end mixed as tech rotation continues - Following yesterday’s tech-driven decline of more than 1% in major indices, investor sentiment stabilized today, but the weakness in semiconductors persisted. The TSX and S&P 500 finished lower, but the Dow ended higher, supported by lower oil prices and easing bond yields. WTI crude fell more than 4%, trading near $70 per barrel, the lowest level since early March. Progress toward reopening the Strait of Hormuz is helping ease concerns about supply disruptions and is beginning to bring relief at the pump, although the U.S. administration has directed the Department of Justice to review gasoline prices, arguing they have not declined enough. Moderating inflation expectations are also relieving pressure on rates, with the 10-year Government of Canada yield falling to 3.37%. The Nasdaq underperformed as investors await Micron’s earnings after the close, which will refocus attention on AI spending and the elevated expectations surrounding it. In corporate news, Alphabet is set to replace Verizon Communications in the Dow, effective before the market opens on June 29, 2026.
   
• Falling oil prices help provide consumer and central bank relief - Oil prices are extending their decline today, with WTI crude trading near $70 per barrel, the lowest level since the start of the Middle East conflict. Following the signing of the Iran agreement, the Strait of Hormuz is reopening, boosting supply. The EIA reported last night that UAE exports have recovered to nearly 85% of pre-war levels. At current prices, oil has retraced almost all of its March and April gains, offering relief at the pump for consumers ahead of the summer driving season. The Fed’s preferred inflation measure, core personal consumption expenditures (core PCE), is due tomorrow and is expected to edge up to 3.4% from 3.3% in May, marking the highest reading since October 2023 and reinforcing the Fed’s hawkish tilt. However, if oil prices remain contained, May likely marked the peak in headline inflation. This would provide the Fed and BoC with some breathing room to maintain a prolonged pause, in our view.
   
• First-half performance check - With just a handful of trading days left in the quarter and the first half of the year, equities remain on solid footing, with several indices near all-time highs, including the TSX, the Dow and the Russell 2000, a proxy for U.S. small-caps. While geopolitical uncertainty drove a near-correction earlier in the year, recent de-escalation has helped lift sentiment. The TSX and S&P 500 are up about 10%, supported by strong corporate earnings, even as valuations have modestly compressed since the start of the year. In contrast, investment-grade bonds are flat and have underperformed cash, as persistent inflation and uncertainty around central bank policy have pushed yields higher. Despite continued market concentration, diversification has added value so far this year, with emerging markets (+30%), U.S. small-caps (+24%), and mid-caps (+18%) all contributing to portfolio returns. After a strong run in technology, leadership is beginning to broaden and market swings are increasing. In our view, markets are transitioning from narrow to broader leadership, from suppressed to more normalized volatility, and from momentum-driven gains to a more balanced environment. This likely implies some near-term choppiness. However, with the economy remaining resilient and earnings growth still robust, we believe pullbacks should be viewed as corrective rather than trend-ending.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}