Mid-2026 markets: what really mattered

2026-07-20

Inflation is back, conflict in the Middle East, tariff uncertainty: the first six months of 2026 gave investors plenty of reasons to worry. Yet beneath the headlines, a diversified portfolio held up rather well.

By Isabelle Bérard, MBA, Pl. Fin. — Wealth Advisor

The first half of the year had no shortage of reasons for concern. But after the noise of the headlines, the picture is more nuanced than it seems: major indices held up well, and markets once again reminded us why diversification is not a slogan, but a risk-management tool. Here is an overview to keep the focus on what matters.

Markets since January 1 Here are the returns of major indices since the start of the year, expressed in Canadian dollars with dividends reinvested — in other words, what a local investor actually experienced: • S&P 500 (United States): about +14.5% [1] • S&P/TSX Composite (Canada): about +11.4% [2] • International developed markets (Europe, Asia, Australasia): about +13.3% [3] • Emerging markets: about +24.0% [4] • Canadian bonds (FTSE Canada Universe Bond Index): about +2% [5]

One finding stands out immediately: emerging markets, long neglected, are leading the way — ahead of the S&P 500. After more than a decade of U.S. mega-cap tech dominance, leadership is changing hands, often without warning. That is precisely why a well-diversified portfolio remains an ally: it positions you before the tide turns, rather than after.

The Canadian consumer Inflation is back in focus. According to Statistics Canada, the consumer price index rose 3.2% year over year in May, up from 2.8% in April [6]. The main culprit: gasoline, whose prices jumped 33.2% year over year in the wake of the Middle East conflict [6]. The reassuring nuance is under the headline: excluding gasoline, CPI rose only 2.2% [6], and the Bank of Canada’s core inflation measures stayed around 2% [7]. In other words, the surge is mostly energy-driven, not a broad price spiral. In Quebec, the increase was a little sharper, at 3.6% [8].

No rate cuts on the immediate horizon.

The Bank of Canada has held its policy rate at 2.25% since fall 2025, a pause it extended in June [9]. The message for savers is clear: it would be unwise to build a plan on the assumption of rapid rate cuts. Cash and short-term investments still earn something meaningful — without forgetting that inflation eats away at part of that return.

The state of markets The S&P/TSX Composite hit record highs this summer, driven by its resource heavyweights: gold, materials and energy [10]. Our index’s very “resource-heavy” composition makes it a barometer of commodity prices — a profile quite different from major U.S. or European indices [10]. But the real economy is moving more cautiously. Growth remains modest, and uncertainty around U.S. tariffs and the USMCA review continues to weigh [9]. This contrast — vigorous stock markets and a more hesitant economy — is one of the great paradoxes of 2026. It is not a contradiction: markets look ahead, while the real economy moves at its own pace.

What this means for your portfolio

1. Diversification did its job. Emerging and international markets outperformed the S&P 500 in Canadian dollars. A portfolio concentrated in a single region — or a handful of tech names — would have missed a large part of the story.
2. Currency matters more than people think. Weakness in the Canadian dollar versus the U.S. dollar inflated foreign-asset returns for investors here. The example is striking: the S&P 500 returned about +14.5% on an unhedged basis, but only +8.5% on a currency-hedged basis [11]. A six-point gap attributable solely to currency. Currency hedging is neither good nor bad in itself — but it deserves a deliberate decision, not chance.

“Safe-haven” assets are not risk-free. Gold, often presented as the ultimate shelter, was trading at the end of June about 25% below its January record high [12], even as other asset classes advanced. “Haven” does not mean “stable”: no asset is safe simply because it has that reputation.

In summary

The first half of the year reminds us that discomfort and resilience can coexist. Households feel the pressure of prices and uncertainty, while markets keep advancing. For investors, the lesson is constant: stay diversified, avoid overconfidence in any single asset class, and keep a long-term plan. The goal is never to guess the next headline, but to stay prepared for uncertainty while continuing to participate in progress.

Methodology The returns presented are total returns (dividends reinvested), expressed in Canadian dollars, measured from January 1, 2026 through July 9, 2026 (bond return as of end of June 2026). They are based on benchmark indices and representative index funds: S&P 500, S&P/TSX Capped Composite, MSCI EAFE IMI, MSCI Emerging Markets IMI and FTSE Canada Universe Bond Index. These are benchmark index returns, not client account returns. Sources

1. iShares / BlackRock Canada, iShares Core S&P 500 Index ETF (XUS) — year-to-date total return (NAV) of 14.46% as of July 9, 2026. https://www.blackrock.com/ca/investors/en/products/251422/ishares-sp-500-index-etf
2. iShares / BlackRock Canada, iShares Core S&P/TSX Capped Composite Index ETF (XIC) — year-to-date total return of 11.44% as of July 8, 2026. https://www.blackrock.com/ca/investors/en/products/239837/ishares-sptsx-capped-composite-index-etf
3. iShares / BlackRock Canada, iShares Core MSCI EAFE IMI Index ETF (XEF) — year-to-date total return (NAV) of 13.28% as of July 9, 2026. https://www.blackrock.com/ca/investors/en/products/251421/ishares-msci-eafe-imi-index-etf
4. iShares / BlackRock Canada, iShares Core MSCI Emerging Markets IMI Index ETF (XEC) — year-to-date total return of 23.98% as of July 8, 2026. https://ca.finance.yahoo.com/quote/XEC.TO/
5. BMO Global Asset Management, BMO Aggregate Bond Index ETF (ZAG), tracks the FTSE Canada Universe Bond Index — year-to-date total return of about 2.2% (end of June 2026). https://bmogam.com/ca-en/products/exchange-traded-funds/bmo-aggregate-bond-index-etf-zag/
6. Statistics Canada, “Consumer Price Index, May 2026,” The Daily, June 22, 2026 (CPI +3.2%; gasoline +33.2%; CPI excluding gasoline +2.2%). https://www150.statcan.gc.ca/n1/daily-quotidien/260622/dq260622a-fra.htm
7. TD Economics, Canadian Consumer Price Index (May 2026) — Bank of Canada core inflation measures (median and trim) around 2% in May. https://economics.td.com/ca-cpi
8. Institut de la statistique du Québec, Consumer Price Index (Quebec CPI +3.6% in May 2026). https://statistique.quebec.ca/fr/produit/publication/indice-prix-consommation
9. Bank of Canada, monetary policy announcement of June 10, 2026 (policy rate held at 2.25%; Canadian dollar depreciation; next decision July 15, 2026). https://www.bankofcanada.ca/2026/06/fad-press-release-2026-06-10/
10. The Canadian Press / bbntimes, Toronto Stock Exchange Today (S&P/TSX Composite at record highs in July 2026; heavy gold, copper and materials weighting). https://www.bbntimes.com/global-economy/toronto-stock-exchange-today-s-p-tsx-composite-pares-early-gains-as-global-chip-rout-and-firmer-yields-weigh
11. iShares / BlackRock Canada, iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP) — year-to-date total return (NAV) of 8.50% as of July 8, 2026. https://www.blackrock.com/ca/investors/en/products/239727/ishares-sp-500-index-etf-cadhedged-fund
12. World Gold Council, Gold Mid-Year Outlook 2026 (gold about 25% below its record high; data as of June 26, 2026). https://www.gold.org/goldhub/research/gold-mid-year-outlook-2026

This text is provided for information and educational purposes only. It does not constitute personalized investment, tax or legal advice, nor a recommendation to buy or sell. Past performance does not guarantee future results and the value of investments may fluctuate. For advice tailored to your situation, consult your advisor.