A wide range of possible outcomes stresses the benefits of diversification

May 2026 Insights & Strategies

Macro Highlights for April

• The Bank of Canada (BoC) held its policy rate at 2.25% at the end of April, noting that a wide range of possible outcomes on significant events like the war in Iran, affecting the price of oil, and trade uncertainty, with the upcoming USMCA review, could introduce scenarios that could prompt rate cuts or hikes.
• The BoC’s updated Monetary Policy Report remained relatively unchanged, forecasting GDP to slow to 1.2% growth (up from 1.1% previous forecast) in 2026 after the 1.7% increase in 2025. The forecast for 2027 is for an improvement to 1.6% (up from 1.5%). While higher oil prices could pressure growth in the short-term, the more significant risk would be from disruptions or significant decline of business confidence through the USMCA review process.
• Canada’s unemployment rate rose to 6.9% in April, up from 6.7% in March, as employment fell by 17.7k. The YTD decline is now over 112k, and likely easing any pressure for the BoC to raise rates. The labour market remains more resilient in the U.S., with the unemployment rate steady at 4.3%, with a 115k rise in payrolls in April, putting the 3-month average gain at almost 50k/mth, at the upper end of the breakeven range, leaving more reasons for the Fed to stay on hold rather than to resume cutting rates.

Financial Markets in April

• In April, U.S. equities staged a rapid V-shaped recovery despite ongoing U.S.–Iran negotiations. The S&P 500 delivered a 10.4% price return and a 10.5% total return, marking the 12th strongest monthly performance since 1950, reaching a new all-time high and lifting year-to-date returns to 5.3% and 5.7%, respectively. Canadian equities also advanced, with the S&P/TSX Composite gaining 3.7% in price and 3.8% in total return, nearly retracing pre-Iran conflict levels. Year-to-date, the index has delivered price and total returns of 7.1% and 7.9%, respectively.
• On the S&P 500, over 84% of constituents have reported 1Q26 results, with approximately 87% exceeding expectations. Earnings are tracking at 8.2% quarter-over-quarter and 26.5% year-over-year, marking a sixth consecutive quarter of double-digit year-over-year growth, with sectors containing significant mega-cap technology exposure continuing to be the primary drivers of aggregate earnings expansion.
• On the TSX Composite, over 56% of constituents have reported 1Q26 results, with approximately 60% beating expectations. Earnings are tracking at -4.9% quarter-over-quarter and 22.2% year-over-year; however, growth remains concentrated, with roughly 13 percentage points of the year-over-year expansion driven by the Materials sector, reflecting elevated precious metal prices versus 1Q25. With the improving profitability outlook we are increasing our 2026 year-end target for the TSX Composite from 34,900 to 37,000.

Upcoming

• The joint review of the USMCA, including the July 1 deadline to confirm if the agreement will be extended for 16 more years, or the start of annual reviews for the next 10 years, will likely be the most consequential event for Canada this year. A lack of renewal does not mean that the USMCA ends imminently, but will just lead to protracted uncertainty as various adjustments are negotiated, which could still take years. While we are optimistic of a reasonably good outcome for Canada, we are also braced for demands from the U.S. for adjustments related to rules of origin, digital services, and the dairy industry, to impact various sectors.
• The striking down of IEEPA-based tariffs, and new ruling against the 10% global replacement tariff, has forced the U.S. Administration to shift tactics, but not to abandon its goals of tariffs as a policy tool and to drive government revenues. This is leading to persistent uncertainty that keeps businesses from longer-term planning and investing. We will be watching ongoing revisions to the tariff strategy.
• The Iran conflict is rapidly evolving, and despite the latest ceasefire, the war is not yet over, so we will be watching for both short-term and longer-term impacts to energy prices and broader economic impacts, depending on any further escalation and expected duration. Persistence in higher oil prices could stoke inflation concerns and push out the timeline for further Fed rate cuts, although the Fed seems to be willing to consider the energy price spike and resulting impact on inflation as transitory supply-side disruption that rising policy rates would have limited ability to influence.