Global Insight 2026 Midyear Outlook: Canada

Global Insights

The S&P/TSX climbs to record levels amid Iran tensions, tariff uncertainty. A technical recession masks encouraging signs in the Canadian economy.

15 June 2026 | 4 minute read

By Matt Altro, CFA; Brett Feland

Canada equities

Volatility gripped the S&P/TSX Composite during H1 2026, with the index experiencing a temporary pullback following the onset of the conflict in Iran. Market resilience shone through, as it took fewer than 30 days to recover the nine percent drawdown, and then the S&P/TSX Composite continued moving higher to all-time highs in early June. Looking ahead, the Canadian market continues to face lingering volatility risks stemming from perceived AI-driven disruption, Middle East tensions and the ongoing tariff uncertainty as USMCA renegotiations approach in July.

The Energy sector performed exceptionally well in Q2 2026. As the conflict in Iran continues, we assess a two-fold impact: (1) if oil prices remain elevated, this should drastically increase Canadian oil producers’ cash flows, creating attractive earnings and shareholder return profiles, and (2) the same supply disruptions that are causing US$90s to triple-digit West Texas Intermediate crude prices are negatively impacting consumers’ financial wellbeing. The former has helped drive performance amongst oil and gas equities while the latter remains a key headwind that we continue to monitor. Consumer purchasing power and the overall impact of higher energy prices on the economy have the potential to drive higher-for-longer inflation, heighten the risk of Bank of Canada interest rate increases and dampen overall domestic economic growth.

The USMCA free trade agreement is up for renewal discussion on July 1. The unknowns concerning the potential outcomes and the possible bargaining chips the U.S. administration may seek to use have cast uncertainty across the tariff landscape. While RBC Economics believes the agreement is likely to remain broadly unchanged, volatility surrounding the discussions will be a key focal point, in our view.

Amidst a steady stream of cautionary headlines, the S&P/TSX Composite has powered forward so far this year, buoyed by increasing optimism about the economy and robust corporate earnings. As a result, we remain cautiously optimistic about the broader Canadian equities investment landscape for the remainder of 2026.

Canada fixed income

Recent macroeconomic data has painted a mixed picture of the Canadian economy. In Q1, GDP contracted by 0.1 percent on a quarter-over-quarter annualised basis, significantly below the 1.5 percent growth consensus expectation. This was the second straight quarter of negative growth, which satisfies the technical definition of a recession. Economic output has contracted for three of the past four quarters. At the same time, underlying details in the GDP report offered more encouraging signs. Per-capita GDP grew at 0.9 percent in Q1, household consumption was solid, and early signs are pointing to a rebound of growth in April. Canadian employment data has been volatile, with significant job losses in January and February partially offset by an unexpected surge in employment gains in May. Headline CPI inflation is elevated due to high energy prices, but recent core inflation measures excluding them are close to the Bank of Canada’s (BoC’s) two percent target.

Despite these conflicting signals, market pricing implies one rate hike from the BoC by the end of this year. However, uncertainty continues to weigh on the nation’s economy. Geopolitical tensions and ongoing U.S. tariff uncertainty as Canada-United States-Mexico Agreement (CUSMA) renewal negotiations are underway pose risks to Canadian growth, while elevated oil prices place upward pressure on inflation. We think the BoC is most likely to remain on hold until at least the end of 2026.

Meanwhile, credit investors do not appear concerned with macroeconomic uncertainty. Like in the U.S., Canadian credit spreads – the additional compensation investors receive for buying corporate bonds over “risk-free” government bonds – remain as tight as ever, meaning they are less expensive for the borrower, but more expensive for the lender. This creates an accommodating environment for companies looking to issue new debt, and several are taking advantage. U.S. hyperscaler companies have begun issuing in Canada to help fund their AI-related growth plans. In May, Alphabet issued C$8.5 billion of bonds, the largest ever Canadian corporate bond deal. This record was short-lived, however, as Amazon.com came to market in early June with an even larger C$14 billion deal. Investor demand for these deals was strong, and the market absorbed them with ease, with minimal impact on credit spreads.

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