Launch Pad

This morning’s moves follow a mixed week for equities with the TSX seeing a weekly gain while U.S. indexes ended lower as investors grew more cautious about the huge capital spending required to support AI. Those concerns led to declines in tech and semiconductor shares ahead of earnings from more major tech companies later this week including Microsoft, Meta, Amazon, Samsung, and Apple. Concerns grew after Alphabet increased its AI investment plans, raising questions about when those costs will translate into stronger profits. Falling oil prices towards the end of the week helped limit broader market declines despite ongoing Middle East tensions, while strong gains in real estate and materials stocks provided additional support for the S&P 500.  

It’s not only earnings investors will be paying attention to, with markets also awaiting the FOMC meeting. Fed policymakers head into this week’s meeting facing renewed inflation risks from higher oil prices, and now expanding U.S. tariffs, increasing speculation that another interest rate hike could be on the table. While recent inflation data had supported expectations for rates to remain unchanged, escalating Middle East tensions have lifted energy prices and prompted markets to raise the probability of a rate increase. Even if the Fed leaves policy unchanged, investors will closely watch Chair Kevin Warsh’s guidance for indications of whether inflation pressures could lead to tighter monetary policy later this year. 

Big CapEx = Big Returns? While investors have favoured AI-related themes in recent months, sentiment has become more cautious as questions grow over whether massive capital spending will generate sufficient returns. Shares of Big Tech companies came under pressure last week after Alphabet’s earnings highlighted rising AI investment costs, shifting investor focus from revenue growth to profitability and cash generation ahead of results from megacap tech later this week. At the same time, enthusiasm for AI continues to support sectors tied to the buildout of the necessary infrastructure, with industrial companies benefiting from demand for data centers, power-grid upgrades, electrical equipment and construction machinery. Although investors remain confident in the long-term AI opportunity, elevated valuations across both tech and industrial stocks suggest markets are becoming selective and demanding clearer evidence that AI investments will translate into sustainable earnings growth. As previously mentioned, we should get a clearer picture this week with some tech heavyweights to report earnings.  

Looking on the bright side. Canadian consumer confidence has improved in recent months as concerns about weak economic growth and higher energy prices have eased. The latest Bloomberg Confidence survey found that optimism has returned, with survey results showing fewer Canadians expect the economy to deteriorate over the next six months. Perceptions of personal finances have also improved, supporting the BoC’s view that consumer spending has remained resilient. Stronger retail sales and signs of economic stabilization suggest households are adapting to external pressures, even as U.S. trade policy continues to weigh on the outlook. Still, experts have highlighted that renewed tariff threats from the Trump administration and the potential for higher energy prices could challenge this improving sentiment in the months ahead. 

The U.K. economy is expected to remain weak with strategists arguing that slowing demand and soft labour markets will continue to weigh on productivity. As a result, the Bank of England is likely to keep interest rates on hold in the near term before resuming rate cuts next year, as firms continue absorbing higher input costs instead of passing them on to consumers. The new Labour government faces limited fiscal flexibility due to high borrowing costs and strict fiscal rules, reducing the scope for meaningful stimulus. From an investment perspective, the markets expect a steeper U.K. yield curve and continued pressure on the British pound.   

You gotta fight for your right to party! An 82-year-old Minnesota woman successfully campaigned to change state law after her assisted living facility was prohibited from serving alcohol at social events despite residents being allowed to consume their own drinks. The women testified before lawmakers that seniors in assisted living should retain the same freedoms and social opportunities they enjoyed earlier in life, arguing that requiring liquor licenses created unnecessary barriers. In a time when U.S. politics is extremely dividend, this seemed to be the one issue lawmakers could agree on, with the legislation passing with bipartisan support, with licensed assisted living facilities now  allowed to serve alcohol at special events. Party on Anita!  

Copper is extending its July gains as a pause in fighting between the U.S. and Iran softened fears of further disruption to the world economy. Copper has enjoyed a strong month as the global market showed signs of supply tightness, including falling inventories and a backwardation structure on the LME. The possibility of U.S. tariffs and the subsequent large inflow into the U.S. has offered an upside risk for prices elsewhere. Still, the potential for intensified military action in the Middle East had fueled more cautious trading in recent sessions. In China, copper inventories held in Shanghai Futures Exchange warehouses fell to their lowest since February 2024, extending an unusually steep decline since March. Import premiums have spiked this month as Chinese buyers turn to overseas markets amid tight supplies at home.