Equity markets in Q2 2026 delivered a generally positive, but uneven, performance across regions, shaped by resilient earnings growth, the ongoing AI-driven investment cycle, and elevated geopolitical risks.

U.S. equities remained a global leader through the quarter, supported by strong corporate earnings and continued momentum in technology and AI-related sectors. Broader market participation improved as performance extended beyond mega-cap stocks into cyclicals and smaller caps. Despite periodic volatility tied to rising oil prices and geopolitical tensions, the S&P 500 generated solid quarterly gains, reflecting earnings growth expectations and resilient economic activity.

Canadian equities posted more modest but still positive returns. The S&P/TSX Composite benefited from strength in energy and financials, supported by elevated commodity prices, particularly oil prices influenced by Middle East disruptions. However, performance lagged the U.S. mainly as a result of less exposure to AI.

Across regions, Q2 reflected a “broadening bull market,” with leadership gradually rotating beyond U.S. mega-cap technology. While macro uncertainty and geopolitical risks introduced volatility, strong earnings growth and structural investment trends—particularly in AI—supported a constructive view of global equity trends.

Income can help offset equity volatility

Fixed income markets delivered mixed but generally resilient performance during the quarter, shaped by persistent inflation pressures, geopolitical shocks, and evolving central bank policy.

U.S. Treasury yields remained range-bound but volatile as investors reassessed the path of monetary policy. The U.S. Federal Reserve held rates steady in June but signaled ongoing concern about inflation, with projections still above target near 2026 levels, reinforcing a potential “higher-for-longer” stance based on those projections. Credit markets were supported by solid economic growth and attractive yields.

In Canada, bond performance tracked U.S. trends, with yields elevated and curves relatively flat. The Bank of Canada adopted a data-dependent approach, emphasizing flexibility amid uncertain inflation dynamics, leaving markets sensitive to incoming macro data.

Overall, Q2 highlighted an environment where income and selectivity dominated returns amid persistent inflation and cautious central bank policy. Clients should focus on the longer-term income provided by bonds rather than the short-term volatility of prices.

A tale of two economies

The U.S. economy has seemingly moved from resilience to goldilocks, with support coming from fiscal policy (tax cuts from the One Big Beautiful Bill Act) and capital spending driven by AI.

The Canadian economy fell into a technical recession with two consecutive quarters of negative GDP growth. However, we believe Canada is still far from true recession territory. The first quarter saw only a slight decline and seems more reflective of today’s uncertain trade and geopolitical environment than of an entrenched economic weakening. However, uncertainty surrounding CUSMA negotiations could create more issues for an already fragile economy.

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