Launch Pad

Canada’s economy rebounded in Q2, easing recession concerns after GDP rose 0.5% in April, beating expectations, and an estimated 0.1% in May. Assuming flat growth in June, the data points to annualized GDP growth of about 2.3% for the quarter, marking an improvement after six months of stagnation. The recovery was driven primarily by a rebound in oil and gas production following earlier maintenance disruptions, along with gains in manufacturing, construction, and real estate, including stronger housing resale activity in Toronto. While economists and the BoC continue to expect slower growth overall due to U.S. trade uncertainty and weaker immigration, the latest figures suggest the economy has regained momentum and eased earlier recession concerns. 

Mid-year report card. The first half of 2026 has been volatile for stocks, with the S&P 500 and TSX falling due to the Iran war, only to rebound on signs of easing geopolitical tensions. Stocks in the U.S. has seen outsized returns, helped by a rally in AI-related names. The Philadelphia Semiconductor Index is up 74% in Q2, led by memory-chip names Micron and Sandisk, while other sectors like energy have reversed lower as oil prices fell on hopes of a U.S.-Iran peace deal. Investors are now debating whether the second half of the year will bring a broader rally or a fresh batch of volatility, with key risks including the durability of AI spending, potential Fed rate hikes, sticky inflation, and U.S. midterm elections. History suggests strong first halves often lead to further gains, but midterm years typically bring larger drawdowns before year-end rebounds, making broader market participation beyond chipmakers a crucial test for the rally. 

The yen has fallen to its weakest level against the U.S. dollar in 40 years, slipping to ¥161.96 per dollar. Despite the BOJ raising interest rates to 1%, the wide interest-rate gap with the U.S. continues to drive capital outflows. The weaker yen is benefiting Japanese exporters and supporting record-high stock prices but is also increasing import costs for energy and food, fueling inflation and putting pressure on households and the government. Markets are now on high alert for another round of government currency intervention after Japan previously spent a record ¥11.7 trillion defending the yen. Analysts have warned that that intervention alone is unlikely to reverse the trend unless U.S. interest rates fall or Japan can sustain a more aggressive tightening cycle.  Japan’s aging population, weak long-term growth, and high public debt, also continue to weigh on the yen’s longer-term outlook. 

Picks and shovels. The AI boom is driving investments toward power infrastructure and clean energy companies, as investors look for businesses that can meet the huge electricity demands of data centers. More than 10 companies in the sector have gone public this year, raising a record $11.6 billion, with strong investor interest in geothermal, nuclear, power equipment, and cooling technologies. Hyperscalers like Meta, Amazon, and Microsoft are fueling demand by investing more into AI infrastructure, creating opportunities for suppliers even before many of their technologies are fully commercialized. Still, the rush also carries its own set of risks, as some companies remain years away from profitability and recent volatility in AI-related stocks highlights the potential for sudden swings, especially for speculative IPOs and SPAC-backed firms. 

Size insecurities. Despite outperforming the S&P 500 by nearly 13% in the first half of the year and posting gains of more than 20%, U.S. small-cap stocks continue to be overlooked by investors, with most attention still focused on AI-related semiconductor companies. Investor positioning remains light, with nearly $6.8 billion flowing out of small-cap stocks and ETFs this year, even as the Russell 2000 records its fifth consecutive quarter of gains. Strategists believe this could change if small caps continue to deliver stronger earnings growth than large caps, with analysts forecasting continued outperformance through year-end. While higher interest rates remain a headwind because small caps are more rate-sensitive, their resilience amid a hawkish Fed suggests investors may rotate into the sector as enthusiasm for AI stocks cools. 

Oh, Canada. It wouldn’t be a Canada Day preview without some weather talk. According to The Weather Network, Canadians will experience a little bit of everything, from a major heat dome over southern Ontario and Quebec, where humidex values could approach 44°C, to the risk of showers and thunderstorms across parts of the Prairies and Atlantic Canada. BC is expected to enjoy mostly warm, seasonal weather, with only isolated afternoon showers. If you’re celebrating outdoors, keep an eye on heat warnings and thunderstorm risks. Whether you’re relaxing at the cottage, sitting by the dock, or cooling off indoors, The Globe and Mail’s annual Giant Canada Day Crossword is always a worthwhile tradition. And if you’re willing to brave the heat and happen to be in Toronto, Rogers is giving away 500 tickets to tomorrow’s Canada Day Blue Jays game against the Mets through pop-up locations across the Greater Toronto Area, giving fans a chance to see former Blue Jay Bo Bichette. Yesterday marked Bichette’s first game at Rogers Centre in a Mets uniform, an emotional homecoming that saw the typically stoic former Blue Jay fight back tears during his pregame media availability before receiving two standing ovations from appreciative Blue Jays fans. Happy Canada Day! 

Aluminum is heading for the steepest monthly decline since 2008 as expectations for a return of lost Middle Eastern supply saw it rapidly unwind an Iran war-induced rally. The metal has plummeted more than -15% so far in June, wiping out gains made over the previous three months due to the loss of supply from the region that accounts for nearly 10% of global output. Record exports from China and strategic voyages through the strait to replenish alumina reserves have also helped fuel aluminum’s swift reversal of its earlier rally. The market has flipped into a contango structure, where prompt prices are cheaper than for later-dated contracts, over the last couple of weeks, signaling concerns over a shortage have eased. Along with other metals, aluminum has also been hit by a sharp run-up in the U.S. dollar since mid-May, making it more expensive for many buyers.