2026 Mid‑Year Market Check‑In
By James Parkyn - PWL Capital - Montreal
We’ve reached the halfway point of 2026, and as we usually do at this time every year, we’re taking a step back to look at what has shaped global markets over the past six months.
If I had to summarize the first half of 2026 in one word, it would be… eventful. Not chaotic like last year, but full of surprises that kept investors on their toes.
The big drivers have been geopolitical tensions, especially in the Middle East, and the tug‑of‑war between higher inflation and slowing growth. Add to that continued frenzy around artificial intelligence (AI) and the hype around the latest SpaceX initial public offering (IPO).
In short, investors had a lot to digest.
Markets shrugged off Iran war
Starting with geopolitics, the biggest shock of the first half of 2026 was the Iran war. The conflict triggered global stock market volatility and a sharp spike in oil prices. Crude oil shot up from around USD $70 to $125 a barrel driven by fears of supply disruptions.
The market reaction was fast and violent, with major stock market indexes losing roughly 10% in a matter of days. It’s important to remind ourselves that none of this was predictable. Investors who tried to trade around the headlines would have had a very hard time getting it right.
Even as the Strait of Hormuz remained closed to oil tankers for three and a half months, global stocks markets found themselves in positive territory at mid-year. In fact, the U.S. stock market rallied 15.5% in the second quarter, enjoying its best three months since spring 2020.
Go figure!
AI mania, return of big IPOs
Another big theme of 2026 was the AI boom. U.S. markets last year focused mostly on the so-called Magnificent 7 tech giant stocks. The excitement this year has spread to cloud infrastructure, networking equipment, data centers and advanced chip manufacturing.
We also saw the return of big, headline‑grabbing IPOs. After a long drought in the IPO market, 2026 is shaping up to be a big year. Elon Musk’s SpaceX came to market in June as the largest IPO in history. Open AI and Anthropic, both leading U.S. AI stocks, are also expected to go public in coming months.
For long‑term investors, it’s important to stay grounded and not get swept up in the hype. IPOs have historically been good for institutional investors that own shares before the stock went public. But for individual investors, their long‑run performance is far more mixed. They’re often unable to beat the return of a diversified benchmark like the S&P 500 Index.
Inflation is back
Turning to the economy, in Canada inflation has accelerated to its highest level in more than two years to reach 3.2% in May. This increase is due mainly due to the war in Iran and the resulting rise in the price of oil.
The Bank of Canada is currently dealing with mixed signals of a slowing economy marked by two successive quarters of GDP contraction and a possible need to fight inflation. For now, the central bank rate remains unchanged for the year at 2.25% and market expectations are that there won’t be any changes in rates in 2026.
Meanwhile in the U.S., inflation has risen to 4.2% in May, the highest level since April 2023 and well above the Federal Reserve’s target. Despite this news the Fed has kept the fed funds rate unchanged at the last meeting at 3.75%. The U.S. economy continues to defy expectations growing at 2.7% annually in Q1. Consumer spending is strong, and unemployment remains low at 4.2%.
Meanwhile, the European Central Bank raised interest rates by 25 basis points in June to 2.4% in order to keep a lid on inflation, which increased to 3.2% in the Euro zone in May. In the U.K., the Bank of England kept its benchmark rate unchanged at 3.75%.
Modest bond returns
Turning to market statistics, Canadian short‑term bonds, which are at the core of our fixed income portfolios, returned a modest 1.4% year‑to‑date, while the Canadian Universe Bond Index, which holds longer-dated bonds, delivered a slightly higher 2.1%.
On June 30, the yield on the benchmark 10-year Government of Canada bond was relatively unchanged since the beginning of the year at 3.37% versus 3.45% on December 31, 2025.
(As a reminder, a full array of market statistics is available on our team page on the PWL Capital website. Also find this data and the performance of our model portfolios on our Capital Topics website in the resources section.)
Canadian equities on fire
What about equities? In Canada, the S&P/TSX Composite Index was up 11.2% in the first half, driven mostly by energy and financial services which soared nearly 25% and 21% respectively. These two sectors have a huge impact on the TSX since they’re the two largest constituents—together representing over 50% of the index. For the last 12 months, the S&P/TSX Composite is up a massive 32.9%.
The surprise in Canada was that contrary to other markets, especially the U.S., the information technology sector has struggled and not kept pace with the AI story. The sector was negative 8.5% for the period.
U.S. and international stocks red hot
The U.S. market is also up nicely YTD reaching new all-time highs. The S&P 500 and the NASDAQ-100 Index shot up 15.5% and 21% respectively over the last quarter alone.
Interestingly, equities are up despite the Magnificent 7 tech companies having a difficult first half. These seven stocks represent roughly a third of the S&P 500. Yet, as a group, they’re down 3.4% YTD as of June 29.
Yet another surprise is that despite the AI story, U.S. value stocks have outperformed growth for the past six and 12 months.
Developed international equities, measured by the MSCI EAFE fund, had a strong first half too—up almost 10% in Canadian dollars. Meanwhile, emerging markets rose an impressive 28.4%; for the last year they are up 49.9%.
Ignore the noise, stick with the plan
The big lesson is that markets rarely follow the script investors expect. Between the war in Iran, oil price spike, rising inflation, AI boom, SpaceX mania and Mag 7 downturn, there were plenty of reasons to worry. Yet, staying the course with a broadly diversified portfolio and long-term plan delivered solid returns.
Review whether your portfolio still matches your time horizon, risk tolerance and capacity. You may also need to periodically rebalance your allocations to make sure you’re in line with your targets.
We can’t predict how eventful the second half of 2026 will be. But we can prepare by staying disciplined and grounded in evidence.
Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.