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October 2026 Insights & Strategies

Macro Highlights for September

• The U.S. Fed has moved back into a hiking cycle, increasing its policy rate by 25 bps, to 4.00%. We could see more hikes through early 2027 to contend with an inflation rate that has been above-target for over five years, although a hike with the October 28 announcement has basically been taken off the table with a weaker than expected jobs report that showed U.S. unemployment inching up from 4.1% to 4.2%. The Bank of Canada is in a more comfortable zone to stay on hold at 2.25% with inflation close to target and still weakened, but positive, GDP growth rate, but the pressure for the BoC to start hiking could grow if the US-Iran war continues to hold crude and diesel prices up into the end of the year, which feeds into inflation. We don’t anticipate Canadian hikes happening this year.
• Prime Minister Mark Carney hosted the inaugural Canada Investment Summit (CIS) in Toronto, September 14-15. The event successfully promoted Canada as a jurisdiction open to investment, with new policies to bring down the tax burden for new business capital and the reduction of regulatory impediments. We see this as a good start, but with lots of follow-up required.
• Following the CIS, the European Commission President proposed that Canada become an “associate member” of the EU. This follows Mark Carney’s strategy to develop closer ties and cooperation to offset strained relations with the U.S. Canada and the EU already have a trade agreement, and there is currently no definition of an “associate member”, but the announcement certainly reinforces the intention for Canada to diversify its partnerships.

Financial Markets in September

• The S&P 500 declined modestly in September, posting a price return of -0.5% and a total return of -0.3%. Despite the monthly pullback, the index finished 3Q26 with price and total returns of 2.0% and 2.3%, respectively, bringing year-to-date gains to 11.8% and 12.7%. Beneath the surface, however, market breadth narrowed over the month as gains were increasingly concentrated among larger companies.
• The S&P/TSX Composite experienced a steeper September pullback, falling 2.9% on a price basis and 2.6% on a total return basis. The decline erased more than half of the gains accumulated earlier in the quarter, leaving the index with 3Q26 price and total returns of 1.1% and 1.6%, respectively. Year to date, the index remains up 11.1% on a price basis and 13.0% on a total return basis. Market breadth also weakened from mid-August levels as the September decline extended across most sectors, led by weakness in the heavily weighted Materials and Energy sectors.
• The closely watched U.S. 10-year Treasury yield has moved well above the psychological 5.0% threshold, reaching 5.28% at the time of publication. Given its importance as a benchmark for equity discount rates, a further rise could put additional pressure on valuation multiples. Encouragingly, historical data suggest that mega caps have tended to provide support as the 10-year yield approaches a peak. In the 12 months following past yield peaks, market breadth has typically improved, with U.S. equities performing well across market-cap segments. In comparison, the Canadian 10-year government bond yield remains considerably lower at 3.93%.

Upcoming

• The next FOMC rate announcement on October 28, will provide more clarity on the speed and consistency of the U.S. rate hiking cycle, specifically due to the political implications of a hike just days before the U.S. midterm voting on November 3. Current market-implied odds of another 25 bp hike, to 4.25%, at that meeting is 17%, down from 70%, following a weaker than expected U.S. labour report. The next BoC announcement will similarly be on October 28, although we expect the Canadian policy rate to stay at 2.25% for the rest of the year.
• Earnings season is getting underway. The market has been supported by solid earning and further profitability growth, which has in large part been driven by A.I. spending. Expectations for 3Q26 earnings remain high, and forecasts into 2027 remain optimistic. S&P 500 earnings have beaten pre-season expectations for 14 quarters in a row. We will be watching market breadth, as indexes have been relying heavily on A.I. related strength.
• Canada will be hosting the upcoming Canada-EU Summit October 29-30 in Montreal, when we hope to hear more details on the evolving relationship.