Q2 2026 Market Review

The second quarter of 2026 brought a meaningful rebound in equity markets, but it did not eliminate the uncertainty that shaped the start of the year. Investors entered April looking for clearer direction after a volatile Q1, yet markets continued reacting to trade headlines, inflation releases, central bank decisions, and commodity swings. The difference was investors became more willing to look through near-term noise. Stronger risk appetite, earnings expectations, and AI enthusiasm helped markets recover, supporting broader resilience, even as risks remained unresolved.

Trade Policy Developments

Trade policy remained an important source of uncertainty throughout Q2. In April and May, investors were still assessing how earlier tariff challenges could affect companies exposed to cross-border trade and imported inputs. By June, the Office of the United States Trade Representative had announced findings and proposed actions in 60 Section 301 investigations related to forced-labour goods. These measures signalled that U.S. trade policy remains interventionist, even as the framework around tariffs continues to evolve. For companies, this created uncertainty around import costs, supplier relationships, sourcing decisions, and margins.

Tariff risk has become more targeted, but not less important. Businesses with heavy exposure to imported goods may continue facing higher costs or added compliance burdens, while firms with diversified suppliers, domestic production, or pricing power may be better positioned. For investors, Q2 reinforced that trade policy can still affect earnings durability, sector leadership, and global diversification, especially in manufacturing, consumer goods, autos, technology hardware, and North American trade.

Interest Rates & Monetary Policy

Monetary policy remained cautious during this quarter. On April 29, both the Bank of Canada and the Federal Reserve held interest rates steady, reinforcing that policymakers were not ready to ease while inflation risks remained elevated. The Bank of Canada again held its policy rate at 2.25% on June 10, citing trade uncertainty, higher energy prices, and inflation pressure. One week later, the Federal Reserve kept the federal funds target range at 3.50% to 3.75%.

Inflation moved higher through the quarter. April inflation data showed Canadian CPI at 2.8% and U.S. CPI at 3.8%. By May, Canadian CPI had increased to 3.2% year over year, while food purchased from stores rose 4.3% and transportation prices rose 9.0%. In the United States, CPI increased 4.2% year over year in May, with energy up 23.5% and core inflation at 2.9%. These figures made investors less confident that rate cuts would arrive quickly.

Growth data was mixed. U.S. real GDP increased at an annualized rate of 2.1%, suggesting the economy still had momentum entering Q2. In Canada, real GDP was unchanged, as stronger household spending offset weaker business investment and softer trade activity. Overall, Q2 reinforced that central banks remain data dependent and will likely need clearer inflation improvement before making policy changes.

Geopolitics & Commodities

Geopolitical risk continued to influence commodity markets, especially through the Strait of Hormuz and broader Middle East supply concerns. Energy markets were volatile as investors weighed the risk of disrupted oil flows against signs that supply routes were beginning to normalize. The International Energy Agency’s June oil report noted that global oil supply was still expected to fall in 2026, with political and operational constraints leaving downside risks around the Middle East recovery.

Oil prices rose when supply fears intensified, adding pressure to inflation expectations. Higher oil prices matter because they affect more than gasoline. They increase transportation, logistics, manufacturing, and agricultural costs, which can flow through to consumer prices. Fertilizer and natural gas risks also remained relevant because they influence food production costs and household inflation.

By late June, some immediate concerns eased as more tankers exited the Strait of Hormuz and oil prices pulled back. However, this did not remove the risk. Q2 showed how quickly commodity markets can move when geopolitical stress touches critical trade routes, and this remains important for inflation, interest rates, and investor sentiment heading into the second half.

Market Performance

Equity markets delivered a strong Q2 rebound. Through June 25, the S&P 500 gained 12.7%, the Dow Jones Industrial Average rose 12.0%, the NASDAQ advanced 17.5%, and the S&P/TSX Composite Index climbed 6.4% on a quarter to date basis. U.S. markets benefited from renewed confidence in growth stocks and AI related companies, while Canadian markets were supported by materials, industrials, financials, and commodity-sensitive sectors.

Sector performance reflected the quarter’s key themes. Technology led much of the U.S. recovery, but valuations remained a concern as investors questioned how much optimism was already priced in. Energy stocks benefited when oil prices rose, then became more volatile as crude prices eased. Materials and mining-related companies helped support Canadian equities, while consumer-sensitive sectors remained exposed to inflation pressure.

Periods like this reinforce the importance of a disciplined, long term approach. Q2 showed that markets can recover quickly even when uncertainty remains elevated. Inflation is still above target, trade policy remains unsettled, and geopolitical events can still affect commodities and sentiment suddenly. A diversified portfolio helps manage these risks while allowing investors to participate in areas of strength. Our focus remains on guiding your portfolio with consistency and care, making measured adjustments while keeping your long-term objectives at the forefront. If you have any questions about your investments or would like to discuss recent market developments further, we are always here to help.

Written By: Gianfranco Campos