We’re pleased to share our Q2 2026 Quarterly Market Update in this edition of Wealth Matters for Dentists.
A Calmer Backdrop
After a volatile start to the year, markets found calmer footing in the second quarter as Middle East tensions eased. A ceasefire between Iran and the U.S. took hold by mid-June, with talks continuing in Switzerland. Although a brief return of hostilities in late June was a reminder that a lasting resolution hasn’t been reached, oil prices settled back down close to where they stood before the conflict. Investors welcomed the improving backdrop, and equity markets responded well, with several major indices touching record highs in June before pulling back modestly by quarter-end.
Economic Data
Inflation data during the quarter reflected the impact of higher energy prices. In Canada, annual inflation rose to 3.2% in May, its highest level in more than two years. The increase was driven largely by higher energy costs, though core inflation remained close to the Bank of Canada’s target. In the U.S., inflation climbed to 4.2% in May, its highest level in three years, as elevated energy prices continued to weigh on consumers. Although gasoline prices eased later in the quarter, inflation remained above target in both countries, suggesting price pressures may take longer to fully moderate.
Elevated inflation tends to keep interest rates higher, which raises borrowing costs for both businesses and consumers, pressuring earnings, spending, and valuations. This quarter, however, strong corporate profits and resilient consumer spending helped offset that headwind.
Market Drivers
It was a strong quarter for equities. The S&P 500 and the Nasdaq each posted their best quarterly performance since 2020, while other major indices, including the S&P/TSX Composite and Japan’s Nikkei 225, also gained ground.
Much of the rally was driven by renewed enthusiasm for artificial intelligence (AI). Investor attention shifted away from the large “Magnificent Seven” technology companies (Apple, Microsoft, Nvidia, and other mega-cap tech names) and toward semiconductor and memory chip manufacturers, power providers, and other businesses supporting AI infrastructure. As a result, these beneficiaries of the AI buildout delivered a standout quarter.
This shift also coincided with a wave of major capital raising, including some of the largest stock and bond offerings seen in years from companies tied to the AI buildout. Periods of massive, rapid investments like this have, at times, run ahead of what the underlying business could ultimately support. While the long-term potential of AI remains compelling, history has shown that not every company benefiting from today’s excitement will go on to justify its valuation or become a lasting investment.
Fixed Income & Gold
The interest rate on 10-year U.S. government bonds climbed from 4.35% to 4.67% this quarter. Since bond prices move in the opposite direction of rates, this caused a temporary dip in bond values, with longer-term bonds feeling the effect more than shorter-term ones.
Gold had its toughest quarter in ten years, falling more than 12% as some of the recent excitement around the metal cooled off.
Our Perspective
This quarter reinforced a theme we’ve been watching closely: with so much capital chasing AI infrastructure and valuations stretching in parts of the market, discipline matters. Looking ahead to the remainder of 2026, Canadian equities continue to trade near record levels, yet ongoing trade negotiations, elevated energy costs impacting consumer purchasing power, and geopolitical tensions point toward periods of volatility. As always, we remain focused on businesses with the ability to sustain their growth and cash flow over time, rather than chasing the market’s latest favorites.
The rise in yields this quarter is also a useful reminder that not all bonds react the same way. When rates move higher, bonds with longer terms are affected the most, while shorter-term bonds are comparatively insulated. We continue to actively monitor the bond portion of your portfolio based on the current rate environment and will adjust our approach as market conditions evolve.
Connect With Us!
We hope you’re enjoying your summer. As always, please don’t hesitate to reach out with any questions about your investment goals or how your portfolio is positioned in today’s environment.
