Market Commentary — Second Quarter 2026
By Alan Carr
Equity markets rose sharply in the second quarter, as crude oil prices declined from their March peak. The S&P 500 rose 14.9%. The S&P/TSX rose 6.4%. WTI crude declined 31%.
Markets
The sectors that had risen in the first quarter declined in the second. Energy and gold were the weakest holdings of the quarter, and gold declined 12.7%, its largest quarterly decline in thirteen years. Technology shares recovered.
European equities reached record levels. The STOXX Europe 600 and the EURO STOXX 50 both closed June at their highest levels on record, and recorded their strongest quarter since 2020. Developed markets outside North America rose 9.8%.
Canadian equities rose even as crude oil declined. The gain came from most sectors, not from energy alone.
Rates
The Federal Reserve held its target range at 3.50% to 3.75% in April and in June. The Bank of Canada held its overnight rate at 2.25%.
The US 10-year Treasury yield closed at 4.44%, an increase of 14 basis points. The 2-year yield closed at 4.14%. The Canadian 10-year yield declined 8 basis points to 3.38%.
Until this quarter, a two-year Treasury yielded more than a ten-year. That arrangement, called an inversion, says the market expects rates to be lower in future than they are now. During the quarter the usual order returned.
Economy
Inflation continued to increase. US headline CPI reached 4.2% in May, the highest level of the year, then declined to 3.5% in June. Canadian headline CPI reached 3.2% in May and declined to 2.8% in June.
The US economy grew at an annualised rate of 2.2%. The Canadian economy grew at 3.3%. Unemployment was 4.2% in the US and 6.5% in Canada.
US high yield credit spreads narrowed to 2.75%, the narrowest level of the year. Moody’s downgraded France to Aa3 in April, and S&P downgraded France to A+ in May.
A credit spread is the extra a company pays to borrow above a government. It narrows when lenders see less risk of not being repaid. In the second quarter it was at its narrowest of the year.
| Level | Quarter | YTD | |
|---|---|---|---|
| S&P/TSX | 34,856 | +6.4% | +9.9% |
| S&P 500 | 7,499 | +14.9% | +9.6% |
| MSCI EAFE | 3,117 | +9.8% | +7.7% |
| USD/CAD | 1.42 | +2.2% | +3.6% |
| EUR/CAD | 1.62 | +0.9% | +0.8% |
| GBP/CAD | 1.88 | +2.1% | +2.1% |
| Oil (WTI) | 69 | −31.4% | +21.8% |
| Gold | 4,073 | −12.7% | −6.0% |
| US 10-year | 4.44% | +14 bp | +28 bp |
| Canada 10-year | 3.38% | −8 bp | −4 bp |
| Fed funds | 3.50–3.75% | unchanged | unchanged |
| Bank of Canada | 2.25% | unchanged | unchanged |
Price returns. MSCI EAFE — developed markets in Europe, Australasia and the Far East.
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