U.S.

Canada

Economic Growth

Economic growth remains strong and robust. Business investment and domestic demand continue to expand at an above-trend pace, which support overall economic activity.

Domestic demand has moderated, resulting in slower growth. Elevated costs of living has resulted in softer consumer spending which continues to weigh on the economy.

Monetary Policy

The U.S. Federal Reserve (Fed) faces a more challenging policy backdrop as inflation has been stickier than anticipated while economic growth has continued to be strong. This increases the likelihood of further policy tightening going forward if inflation fails in move lower towards the Fed target. While the Fed would prefer to avoid hiking rates at this stage, persistently stubborn inflation could leave them with little choice in the matter.

The Bank of Canada (BoC) continues to maintain a largely neutral policy stance following its easing cycle throughout 2024 and 2025. While some economists expect tightening to begin in 2027, policy decisions will remain highly data-dependent. With inflation near the BoC target and growth slowing, the central bank has a good amount of flexibility and could ultimately shift toward a more accommodative policy if weaker economic growth persists.

Inflation

Inflation remains above target and continues to be sticky. The failure to reach an agreement with Iran has extended the conflict, and caused a renewed cycle of higher energy prices prolonging the risk of higher inflation.

Inflation is close to the BoC's 2% target. While the pace at which prices are increasing have largely normalized, households continue to feel the cumulative effects of the prior years of high inflation.

Employment

The U.S. labour market, overall, remains healthy. Unemployment remains low, wages are experiencing good growth, and job creation continues to move forward at a reasonably sustainable pace.

The Canadian labour market has shown some signs of weakening. Unemployment remains elevated while employment growth continues to soften. Wage growth has also moderated, signalling a cooling labour market. 

Consumer Spending  &  Consumer Confidence

Consumer spending remains strong and resilient despite a modest decline in consumer confidence stemming from the higher energy prices and stubborn inflation .

Household debt remains elevated, and many lower rate mortgages are up for renewal. These mortgages will potentially face a step-up in interest rates. These current and anticipated higher debt servicing costs have weighed on discretionary spending decisions. Additionally, years of elevated inflation and continuously higher prices continue to put pressure on household budgets.

Housing Market

Home prices have largely stabilized. However, overall housing activity remains somewhat modest due to overall affordability and concerns regarding inflation and interest rates.

Higher borrowing costs, elevated home prices from years of a strong housing market, and overall ongoing affordability challenges have pressured the Canadian housing market. Market activity has slowed as many sellers seem reluctant to accept lower prices while many buyers remain cautious and continue to struggle with affordability.

Bond/Credit Markets

Treasury yields remain elevated as markets continue to price in persistent inflation. Credit markets remain healthy, with corporate credit spreads remaining tight with no real indication of financial stress.

Government bond yields have declined modestly as inflation has approached the BoC's target inflation rate and as monetary policy moved to a neutral stance. Credit markets have remained stable despite slower economic growth.

Geopolitical Risks

The ongoing conflict in the Middle East has increased the overall geopolitical uncertainty and is a key risk for global markets. Disruptions in energy prices and regional instability adds to overall market volatility and creates an upward bias for inflation expectations.

Trade uncertainty as well as the conflict in the Middle East, via higher commodity prices, will continue to be an overhang for the Canadian economy. The continued trade negotiations, the potential for higher inflation, and the possibility of weaker global growth could further pressure Canadian business investment, the Canadian dollar and financial markets.

Corporate Earnings

Second-quarter earnings have mostly exceeded expectations. Results have been broad-based across sectors, suggesting that corporate results have become less concentrated that it has been in recently.

Corporate results have been stronger in certain sectors. The Financials and Energy sectors continue to be the strongest contributors to Canadian earnings growth. Consumer-oriented sectors have faced pressure as elevated prices and the weakening Canadian consumer have weighed on results.

Equities/Market Leaders

Equities continue to trade at higher valuations relative to historical levels, but the strong earnings growth has provided support allowing for the expansion of multiples. While the market continues to be led by the Technology sector, specifically the artificial intelligence (AI) trade, recently, the gains have broadened to include other sectors such as Industrials, Financials, and Communication Services. This suggests overall improved market breadth.

Canadian equity valuations remain reasonable relative the their U.S. counterparts. Canadian returns have been primarily driven by the Financials and Energy sectors, while the Canadian markets modest AI exposure has  limited the technology-led upside.

Overall Market Outlook For The Rest Of 2026

The U.S. economy remains resilient supported by strong corporate earnings, robust economic growth, and a healthy U.S. consumer. While overall growth will moderate gradually over time, the overall picture remains quite constructive for equities so long as inflation continues to revert back towards its target.

Although economic growth is slowing and consumers are more cautious, valuations remain reasonable relative to historical levels. With inflation close to  the BoC's target, the BoC has greater policy flexibility. Any shift toward a more accommodative stance could provide a meaningful catalyst for the financial markets.