Q2 2026 Strategy & Market Reviews
Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Second Quarter of 2026. You can download the full reports via the links shown below.
Key Observations
During the second quarter, the S&P 500 posted a total return of +15.20% in U.S. dollar terms. After adjusting for currency effects, the return improved to +17.46% in Canadian dollar terms. The S&P/TSX Composite Index delivered a positive total return of +6.96% for the quarter.
Because today’s marketplace concerns are largely U.S.-centric, we are keeping a close eye on the macro factors shaping conditions, the AI-driven performance across technology and other sectors, and the implications for the outlook ahead.
In June, the U.S. Federal Open Market Committee kept the federal funds rate unchanged at 3.50%–3.75%. In response to a notable upward shift in inflation expectations for 2026, nearly half of policymakers—nine of the nineteen committee members—indicated support for at least one interest rate hike later this year.
Offsetting the potential negative effects of tighter interest rate policy expectations is the continued strength in corporate earnings momentum. S&P 500 operating Earnings per Share (EPS) rose +18.9% year-over-year in Q1 2026, more than double the long-run average of +8.7%. Market consensus is for this momentum to accelerate further into 2027 and 2028.
Global equity markets were strong during the second quarter of 2026, driven by better-than-expected economic activity, evidence of progress in negotiations between the U.S. and Iran, and another quarter of robust corporate earnings. Returns were positive across all major developed market regions, with many indices generating double digit returns.
We remain constructive on equity markets. Earnings growth remains robust, the economic outlook is generally positive, and valuation multiples have eased somewhat. Credit conditions in the U.S. remain neutral, and Fed projections suggest inflation could moderate into 2027. We will continue to monitor developments closely and refine positioning as conditions evolve in the weeks and months ahead.
North American Equity Update
Peter Jackson, HBSc, MBA, CFA
Chief Investment Officer
Portfolio Manager, North American Equities
Our overall equity exposure increased from 95% to 97%, while cash decreased from 5% to 3%. Within equities, U.S. exposure increased from 52% to 54%, while Canadian exposure remained unchanged at 43% over the same period. It is important to note that many client portfolios are invested through our North American plus International Equity strategy, which is currently allocated 80% to U.S. and Canadian equities and 20% to international equities. As a result, the effective weights of U.S. and Canadian equities within total equity allocations are modestly diluted due to this international exposure.
The Magnificent 7 (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla) have lagged the broader market this year. They were down -2.5% year-to-date , while the remaining S&P 493 stocks were up +15.6%. At the same time, volatility has increased, prompting us to closely monitor our AI exposure, including both technology holdings and “picks-and-shovels” beneficiaries such as Eaton Corporation. We have already trimmed some of these positions following their strong performance.
Our concerns centre on three areas: capital spending, capital issuance, and return on invested capital. The Big Four hyperscalers (Amazon, Alphabet, Meta, Microsoft) continue to increase AI-related capital expenditures. While their balance sheets remain exceptionally strong, the scale of these investments raises questions about future returns. At the same time, AI competition is intensifying, token consumption appears to be moderating, and lower-cost Chinese models are gaining traction.
With semiconductor valuations approaching dot-com-era levels and market leadership broadening beyond the Magnificent 7, we have continued reducing AI-related exposure and rotating into cyclical industrials and healthcare, adding to existing positions such as Union Pacific Corporation and Linde Plc., and initiating a new position in healthcare provider McKesson Corporation.
In our North American strategy, we established the following positions:
McKesson Corporation distributes drugs to pharmacies, hospitals, and clinics. The company delivers one out of every three prescriptions in the US. We see McKesson benefiting from a series of upcoming drug patent expiries. Over the next few years, some of the most successful specialty cancer drugs in the world are hitting a patent cliff, and McKesson is uniquely positioned to help doctors swap out expensive brand-name biologics for cheaper, higher-margin biosimilar alternatives.
Analog Devices is a global semiconductor leader specializing in high-performance analog, mixed-signal and digital signal processing technology. Gross margins, book-to-bill, and earnings momentum have all improved and we expect the trend to continue as the company’s products align with several long-term secular mega-trends including factory automation, robotics, electrification, advanced driver-assistance systems, and the expanding infrastructure demands of artificial intelligence.
A detailed review of each holding can be found in the full report per the link above.
Global Equity Update
Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities
Global equity markets were strong during the second quarter of 2026, driven by better-than-expected economic activity, and as cited evidence of progress in negotiations between the U.S., and another quarter of robust corporate earnings. Returns were positive across all major developed market regions, with many indices generating double-digit returns.
The Middle East conflict led to renewed volatility in oil markets and reinforced the potential for higher input costs across the global economy. Despite these concerns, economic growth remained sufficiently firm to offset fears of an imminent slowdown. The number of cargo ships and oil tankers passing through the Strait of Hormuz increased significantly during the last few weeks of the second quarter.
Artificial intelligence remains one of the world’s most important drivers of capital investment. Demand for AI infrastructure continues to be strong, but AI is only one part of a broader global capital spending cycle also being driven by supply chain resilience, energy security, strategic independence, and defence spending.
Across Europe, activity proved more durable than anticipated, supported by improving real incomes, stabilizing manufacturing activity, and continued fiscal support. Japan’s economy remained on a firmer footing than many investors anticipated entering the year. Rising wages, improving business sentiment, and continued capital expenditure supported domestic demand.
One area of the global economy that has shown significant improvement is the manufacturing sector. The Manufacturing PMI index in the U.S., Europe, and Asia has inflected higher in 2026. All three regions currently have PMI readings comfortably above 50, which is the threshold between economic expansion and contraction. This has provided a tailwind to the global economy and is encouraging to see.
We enter the second half of the year with cautious optimism. The underlying drivers of growth include technological innovation, healthy labour markets, and continued corporate investment. In addition, corporate earnings expectations have generally moved higher, with positive earnings revisions becoming increasingly broad-based across sectors and regions. This trend has provided an important foundation for global equity markets despite elevated valuations in certain areas. Putting it all together, we have a constructive view on global equity markets.
New positions added to the Global Strategy:
As described above, Analog Devices is a global semiconductor leader specializing in high-performance analog, mixed-signal, and digital signal processing technology. Margins and earnings momentum align with long-term secular mega-trends including automation, robotics, electrification, advanced driver-assistance systems, and artificial intelligence.
Canadian Natural Resources Limited (CNQ) is the largest crude oil producer and the second largest natural gas producer in Canada, with smaller operations in the U.K. portion of the North Sea, and Offshore Africa. CNQ has increased its dividend 25 consecutive years with a 21% compound annual growth rate.
Galderma offers a science-based portfolio of brands and services for the global skin care industry. With above average market growth, opportunities to expand its operating margins, and new product launches, Galderma is well positioned for growth in the years ahead.
Keyence Corporation is a premier Japan-based global leader in the development and manufacturing of factory automation and inspection equipment. The company’s unique business model is difficult for competitors to replicate and has allowed the company to generate exceptional profitability and consistently high returns on capital.
McKesson also described above, provides essential delivery and logistics for the North American pharmaceutical supply chain. The company delivers one out of every three prescriptions in the US and is well positioned to benefit from a series of drug patent expiries in the years ahead.
MDA Space (MDA) is a 45-year-old Canadian world leader in space equipment manufacturing. MDA has established an excellent financial track record and is now facing large demands in the military and surveillance areas. The SpaceX IPO will only bring increased attention to the space economy and the MDA stock.
New position added to the International Strategy:
Amer Sports is a sporting goods manufacturer that owns the Arc’teryx, Salomon, and Wilson brands. The company expects to expand gross margins by over 200 basis points to 60% in the mid-term. With a solid balance sheet, a reasonable valuation, and strong earnings growth, we believe that Amer Sports shares look attractive.
A detailed review of each company can be found in the full report per the link above.
Fixed Income Update
Owen Morgan, MBA, CFA
Portfolio Manager, Fixed Income
Domestically, we remain in a sluggish economic environment. Inflation remains generally in line with the Bank of Canada’s target, despite the ramp-up in energy prices earlier in the year. Interest rates fluctuated to a small degree in the end, despite discussion about potentially wider swings.
With interest rates decreasing to a small degree, and with corporate spreads narrowing further, it was a positive quarter in general for fixed income securities.
Corporate bond spreads are now close to their all-time low. Investors are not bracing for financial strife. At the same time, there is less margin should an unforeseen shock occur. While spreads are tighter, the yields on corporate bonds are at or near their longer-term average of the past 10 years, and continue to be an attractive investment in our view.
In our previous note, we predicted that core inflation (excluding energy) would likely remain calm as domestic job growth remains weak and financial conditions are tightening. Indeed, the higher oil prices rise, the greater the negative feedback into the employment picture. Further, the looming CUSMA trade negotiations have continued to add uncertainty and quell economic activity.
Taken together, these factors serve as persuasive arguments for policymakers to stay on hold regarding interest rates. We think most of these points remain valid today.
Given our view remains more or less unchanged, our investment strategy remains aligned with prior quarters. We continue to emphasize high-quality, investment-grade corporate bonds for attractive yields, while adding select high-yield bonds where conviction is high. We are keeping duration on the shorter side, and will extend into longer-term bonds if longer term yields become structurally more compelling on a relative basis.
A detailed review of each company can be found in the full report per the link above.
