Launch Pad

The outlook for U.S. equities remains constructive heading into Q2 earnings, helped by macro resilience and continued AI-driven technology leadership. Economic data, including improving manufacturing activity, stabilizing labour markets, and recovering consumer sentiment suggests growth is broadening, while rising 2026 earnings expectations indicate corporate fundamentals  remain strong. The AI investment cycle remains the primary driver of earnings growth, with  hyperscalers and semiconductor suppliers benefiting from capital spending, although investors are now focused on whether these massive AI investments will generate sufficient returns. The biggest risk to the bull market is a rise in funding costs or inflation which would forces companies to scale back AI spending, making upcoming Q2 earnings and management guidance on AI capex, margins, and profitability the key factors for determining whether the rally can continue. 

Constructive in Europe too. European companies are expected to report strong Q2 earnings growth of 14.5%, but the strength is concentrated in the energy sector, where profits are forecast to rally 109% following the spike in oil prices during the Iran war. Excluding energy, earnings growth is projected at a much more modest 5.5%, highlighting the limited breadth of the earnings recovery. Although European stocks have recovered to gain roughly 9% YTD despite the war-induced selloff, the sustainability of earnings growth will depend on oil prices and whether the fragile U.S.-Iran ceasefire holds. 

Falling out of love. Wall Street’s enthusiasm for the Mag Seven cooled in June as investors became concerned about whether massive AI spending will generate adequate returns. The group collectively lost about $2.3 trillion in market value as rising capital expenditures, higher borrowing needs, and rising memory chip costs raised doubts about. At the same time, earnings growth broadened beyond the largest tech companies, with the other 493 S&P 500 companies expected to deliver stronger earnings growth than the Mag Seven, leaving investors to diversify into other sectors and AI beneficiaries. While the AI investment theme remains intact, the market is shifting from rewarding AI spending at any cost to needing more evidence that these huge investments will translate into sustainable profits. 

EM currencies strengthened yesterday after weaker-than-expected U.S. June jobs data reduced expectations for another Fed rate hike, weakening the U.S. dollar and boosting risk appetite. The South African rand, Hungarian forint, Brazilian real, Chilean peso and Mexican peso all gained, with investors viewing softer U.S. employment as giving the Fed more flexibility to pause further tightening. The yen also strengthened yesterday, as traders increased protection against the risk of Japanese currency intervention during thin U.S. holiday trading. Options markets are showing more demand for bets on yen gains and for protection against large currency moves, reflecting concerns that Japanese authorities could once again intervene after the yen hit its weakest level since 1986 earlier this week. With speculation that officials may stop warning markets before intervening, investors are becoming more cautious about maintaining large positions against the yen, especially during periods of low liquidity.  

Private credit funds continue to face redemption pressure as investors withdraw capital, with more than $14.5 billion in redemption requests remaining locked up versus only $8.6 billion returned during Q2. Concerns over asset quality, particularly exposure to AI-disrupted software companies, along with investor rotation into real assets such as infrastructure and real estate are driving the outflows. Many major managers, including Blackstone, Ares, Apollo, Blue Owl, and Morgan Stanley, were forced to cap withdrawals, and industry participants expect redemption queues could take up to two years to clear. Despite the pressure, analysts note that fundamentals in the broader private credit market remain intact, with fundraising, lending activity, and new financing deals continuing, though liquidity remains a key risk for investors. 

Toronto’s housing market tightened in June as home sales increased for a fourth consecutive month while new listings fell, reducing supply. The seasonally adjusted benchmark home price rose 0.3% to $930,800, ending an extended period of flat or declining prices. With sales gaining momentum and fewer homes coming onto the market, the Toronto Regional Real Estate Board said conditions could continue tightening in the second half of 2026. If that trend continues, experts say that prices could return to 2025 levels and eventually begin rising, potentially encouraging more sellers to re-enter the market. 

World Cup knockouts heat up… literally. Sweltering conditions in Toronto set the stage for another dramatic finish, with Portugal advancing 2-1 after Croatia appeared to tie the game in added time, only for video review to overturn the goal because a player was ruled offside. The decision was confirmed using the match ball’s embedded tracking technology, adding to the heartbreak for Croatian fans. Ronaldo opened the scoring from the penalty spot, remarkably recording his first World Cup knockout-stage goal despite appearing in a record six World Cups. The Round of 32 wraps up today with Australia facing Egypt, Argentina taking on surprise qualifier Cabo Verde (the game to watch today), and Colombia facing Ghana, with every match now win or go home. For Canadian fans, attention turns to Saturday’s Round of 16 match against Morocco at 1:00 p.m. ET. Canada will wear its undefeated all-black kit, having won both previous matches in it at this World Cup, as it looks to continue its historic run against 2022 World Cup semifinalist Morocco. GO CANADA! 

Global food prices edged lower as the ceasefire between the U.S. and Iran reduced concerns of further disruptions to supply chains. According to a report from the Food and Agriculture Organization (FAO), the United Nations’ index of food-commodity prices fell 0.3% in June from the previous month, led by grains and sugar. The Iran war risk premium that swept through crop and fertilizer markets evaporated in early June, easing fears of prolonged supply disruptions. However, as harvests begin across the Northern Hemisphere, attention is shifting to lower acreage, weaker yields and adverse weather after a record-breaking heat wave swept across Europe. A developing El Niño is also threatening to further destabilize global food security by damaging crops in key producing regions. On a positive note, the FAO is reporting global grain production is forecast to reach nearly 3 billion tons in 2026, 1.9% below the all-time high set in 2025, but still on track to rank as the second-largest on record.  The FAO index, which tracks internationally traded food commodities, is 1.7% higher than a year ago, but still almost -19% below the record reached in the wake of Russia’s invasion of Ukraine in March 2022.