Markets remain positive despite the escalating noise

August 2026 Insights & Strategies

Macro Highlights for August

• The Bank of Canada (BoC) held its policy rate at 2.25%, as conflicting pressures (oil pressuring inflation higher vs. an unpredictable trade war threatening growth), but a still relatively resilient economy, with 2Q26 GDP recording robust growth of 3.3% and the unemployment rate stable at 6.4%, buys time for policymakers to wait and see.
• Employment data continued to be highly volatile month-to-month, but the overall unemployment rates were unchanged from July. The Canadian unemployment rate was steady at 6.4% for August, despite 41.7k in job losses versus 75k gains in July. The U.S. unemployment rate also stayed steady at 4.1%, with 162k jobs created versus 21k (revised from a 23k loss) in July.
• U.S. economic growth remained robust in 2Q26, at 1.5% annualized growth, in large part due to the A.I. build out. Although down slightly from 2.1% growth in 1Q26, the U.S. consumer remains resilient.

Financial Markets in August

• In August, the S&P 500 posted a price return of 2.6% and a total return of 2.7%, bringing its year-to-date price and total returns to 12.3% and 13.1%, respectively. Sector performance, however, was notably dispersed. Energy, Information Technology, Materials and Health Care led the market higher, while Utilities, Industrials and Real Estate were the main laggards. The rise in Treasury yields created a more challenging backdrop for rate-sensitive Utilities and Real Estate, while Industrials faced some valuation pressure following their strong performance earlier in the year.
• The S&P/TSX Composite maintained its strong momentum in August, delivering a price return of 3.0% and a total return of 3.1%, while reaching a new high despite renewed U.S. tariff tensions. Sector performance, however, was sharply divided. Materials and Information Technology led, while Communication Services rebounded and Energy posted a modest gain; most other sectors declined. Much of the dispersion reflected changes in valuation multiples rather than earnings expectations, highlighting the continued influence of macro and policy sentiment on near-term performance.
• The latest earnings reports have been particularly strong. S&P 500 earnings rose 51.2% year-over-year and 25.1% quarter-over-quarter in 2Q26; excluding the post-pandemic and post-global financial crisis rebounds, the year-over-year increase would be the strongest in roughly two decades. However, the outsized gain in the quarter included investment gains from Alphabet and Amazon, excluding which, EPS growth was still an impressive 34%, against the income expectation of 23%. In Canada, S&P/TSX Composite earnings also advanced meaningfully, rising 34.2% year-over-year and 15.9% quarter-over-quarter.

Upcoming

• All eyes will be on the FOMC meeting on September 16 to gauge the Fed’s commitment to price stability after more than five years of above target inflation. While the recent jobs report might have taken away any excuse to hold rates down, the inflation report on September 11 will likely have a significant impact on expectations and the decision. The consensus expectation is currently for 3.3% inflation in August, down from 3.4% in July, which has helped to establish a 60% expectation of a rate hike at this meeting.
• Canada’s latest counter-tariffs come into effect on September 8. So far, immediate U.S. retaliation has been threatened, but with no specifics, other than the indication that rates on autos, trucks, parts, and steel would increase to 50% on January 1. The escalating threats and extended timelines seem to be intended to force urgency in returning to the bargaining table.
• The war in Iran seems far from being resolved, and traffic through the Strait of Hormuz seems to be just a trickle. Military strikes have been sporadic through the month, keeping everyone guessing as to the possibility of escalation, while strategic petroleum reserves continue to flash warning signs. A rapid escalation or de-escalation could quickly change forecasts that would impact energy prices and interest rates.