Episode #89: Financial Markets Update: 2026 Mid Year Market Check In

• INTRODUCTION:

François Doyon La Rochelle:

You’re listening to Capital Topics, episode #89!

This is a monthly podcast about passive asset management and financial and tax planning ideas for the long-term investor.

Your hosts for this podcast are James Parkyn and me François Doyon La Rochelle, both portfolio In our podcast today we will review the global capital markets performances for the first half of 2026.

Enjoy!

• FINANCIAL MARKETS UPDATE: 2026 MID-YEAR MARKET CHECK-IN:

François Doyon La Rochelle:

We’ve officially reached the halfway point of 2026, and as we usually do at this time every year, we’re taking a step back to look at what has shaped global markets over the past six months. If I had to summarize the first half of 2026 in one word, it would be… eventful. Not chaotic like last year, but full of surprises that kept investors on their toes.

James Parkyn:

Absolutely, François. And unlike 2025, when the shocks came mostly from Washington and Trump’s tariff policies, this year the big drivers have been geopolitical tensions — especially in the Middle East and the ongoing tug‑of‑war between higher inflation and slowing growth. Add to that the continued frenzy around Artificial Intelligence, or AI. And finally, the hype surrounding the latest SpaceX Initial Public Offering, or IPO.

François Doyon La Rochelle:

Exactly. And before we dive into the numbers, I’ll remind our listeners that all the market statistics we’ll be discussing today are available on our Capital Topics website in the resources section, as well as on our team page on the PWL Capital website. These statistics pages are a great companion to today’s episode and a helpful reference for reviewing your own portfolios.

James Parkyn:

And I’ll add to that, François: the performance of our model portfolios is also available on the Capital Topics website. Comparing your own portfolio to a globally diversified benchmark portfolio is always a great way to stay grounded and avoid getting distracted by short‑term noise.

François Doyon La Rochelle:

So, James, let’s start with geopolitics, because that’s where a lot of the market volatility came from this year.

James Parkyn:

Yes, François. The biggest shock of the first half of 2026 was the Iran War. The conflict which started in late February triggered global stock market volatility and a sharp spike in oil prices. Crude oil prices, as measured by benchmarks like West Texas Intermediate or WTI and the UK Brent Oil, both jumped from around $70 USD a barrel to $125 USD a barrel in a matter of days.

François Doyon La Rochelle:

And that spike was driven by fear of supply disruptions. Investors were worried that the Strait of Hormuz, which handles about 20% of global oil shipments, would be closed. And indeed, it was closed, and it was only reopened recently due to a ceasefire and ongoing peace negotiations.

James Parkyn:

But the key point for our listeners, Francois, is that none of this was predictable. Just like last year’s tariff saga, these events came out of nowhere. And the market reaction was fast and violent, major stock market indexes around the world corrected, losing on average roughly 10% in a matter of days. Investors who tried to trade around the headlines would have had a very hard time getting it right.

François Doyon La Rochelle:

I totally agree, James, and most investors could not have predicted that after nearly three and a half months of the Strait of Hormuz being closed, the global stock markets would all be in positive territory at mid-year.  In the U.S., the stock market rallied 15.5% in the second quarter, making it the best quarter since the spring of 2020. Now, shifting gears, one of the biggest themes of 2026 continues to be the AI boom. The enthusiasm around AI hasn’t slowed down at all. In fact, it has broadened.

James Parkyn:

Exactly Francois. Last year at this time, U.S. markets were mostly about the Magnificent Seven and the Mag7 stocks. This year, the excitement has spread to cloud infrastructure, networking equipment, data centers, and advanced chip manufacturing.

François Doyon La Rochelle:

And James, while we’re on the topic of AI and technology companies, we should also talk about something we haven’t seen in a few years, the return of big, headline‑grabbing IPOs. After what seemed to be a long drought in the IPO market, 2026 is shaping up to be a big year.

James Parkyn:

Absolutely, Francois, there are three IPO names that are grabbing the headlines. First, there was Elon Musk’s SpaceX that came to market on June 12th , raising $75 billion. This was the largest initial public offering in history. Later this year or early in 2027, OpenAI and Anthropic, both leading American Artificial Intelligence stocks, are also expected to go public. Both are riding the wave of AI adoption and are also expected to be among the largest IPOs ever.

François Doyon La Rochelle:

And what’s interesting and perhaps perplexing is that some index providers have bypassed traditional multi-month or quarterly waiting periods and have fast-tracked these large IPOs in their indexes. Without going too much into the details, apart from the S&P500, all the other major index providers like MSCI, FTSE Russell, and CRSP have changed their index inclusion timelines and rules to facilitate the entry of these large IPOs in their indexes.

James Parkyn:  

Exactly, Francois, and for some, this creates excitement, but it also creates risk. When a stock is added to a major index, index funds and ETFs are forced to buy it regardless of valuation. The indexed ETFs have no choice but to buy the stock as they need to replicate their benchmark that now includes this new stock. This, in turn, drives up demand and, therefore, the stock price. This increase in price is artificial and demand-driven only; it’s not based on fundamentals.

François Doyon La Rochelle:

Yes, and unfortunately, it’s the ETF holder that will eventually bear the cost of these fast-tracked, high-priced IPO’s. It’s another reminder that markets today move faster than ever, that the narratives spread quickly, that the capital flows quickly, and that index inclusion happens quickly. For long‑term investors, it’s important to stay grounded and not get swept up in the hype. I would also add that for Dimensional Fund investors, Dimensional discipline has not changed, and they do not add IPOs to their portfolio until after one year of market trading.

James Parkyn: 

I think it’s also important, Francois, to remind our listeners that IPOs have historically been good for institutional investors who own shares before the stock went public. But for individual investors, the long‑run performance of IPO’s, after they hit the open market, is far more mixed as they are often unable to beat the return of a diversified benchmark index like the S&P500.

François Doyon La Rochelle:

Now James, let’s turn to the economy. In Canada, inflation has accelerated to its highest level in more than 2 years to reach 3.2% in May. This increase in inflation is due mainly due to the war in Iran and its impact on the price of oil. Thankfully however, this sharp increase may be temporary given the fact that oil prices have now settled back to pre-war prices.

James Parkyn:

Yes, and this is reassuring, Francois, as it gives the Bank of Canada more leeway before making further changes to its policy rate. This is important since the Bank is currently dealing with mixed signals of a slowing economy, which was marked by two successive quarters of GDP contraction and a possible need to fight inflation. For now, the central bank rate remains unchanged for the year at 2.25%, and market expectations are that there won’t be any changes in rates in 2026.

François Doyon La Rochelle:

Meanwhile, in the U.S., inflation has been stickier and is rising to 4.2% in May, the highest level since April 2023. Despite this news, the Federal Reserve has kept the fed funds rate unchanged at the last meeting at 3.75%. The U.S. economy continues to defy expectations, growing at 2.7% annually in Q1. Consumer spending is strong, and unemployment remains low at 4.2%.

James Parkyn:

Francois, before we move on, we also need to mention the major leadership change at the U.S. Federal Reserve since Jerome Powell’s term ended in May, and he was replaced by Kevin Warsh. Markets were watching this transition very closely because Warsh has historically been viewed as more hawkish on inflation than his predecessor.

François Doyon La Rochelle:

Yes, and it should be interesting to see how he will navigate between President Trump’s desire for lower rates and the need for economic and price stability.

James Parkyn:

Right. And as you mentioned, François, U.S. inflation is running at 4.2%, substantially higher than the Fed’s target. This transition came at an emotional moment for the Fed. One of the most well-known Fed chairs, Alan Greenspan, who served as Fed Chair from 1987 to 2006, passed away. Some of our listeners may recall that some of his decisions as Fed Chair were controversial. In the end, whether people agreed with his decisions or not, Greenspan was one of the most influential central bankers in modern history. His tenure shaped decades of central bank monetary policy around the world.

François Doyon La Rochelle:

Absolutely, he was the Fed Chairman for some of the most important periods in recent U.S. economic history: the 1987 crash, the dot‑com boom and bust, and the early 2000s recession. And of course, he will always be remembered for coining the phrase “irrational exuberance” in a 1996 speech, when he warned that markets can detach from fundamentals long before investors realize it. That single expression became part of the financial vocabulary and is still used today to describe speculative excess.

James Parkyn:

Exactly Francois. And you can’t help but wonder what Mr. Greenspan would think of today’s environment and especially the valuations surrounding some of these AI and tech companies. I suspect he would remind investors that narratives can run ahead of fundamentals, just as they did in the late 1990s.

François Doyon La Rochelle:

I agree, James. Greenspan’s “irrational exuberance” warning wasn’t about predicting a crash; it was about reminding investors that confidence can quietly morph into complacency. And that’s just as relevant today as it was in the late ’90s.

James Parkyn:

Elsewhere, Francois, on the economic front, the European Central Bank raised interest rates by 25bps in June to 2.4% in order to keep a lid on inflation, which increased to 3.2% in the Euro zone in May. In the U.K., the Bank of England kept its benchmark rate unchanged at 3.75%.

François Doyon La Rochelle:
Now let’s look at the market statistics for the first half of 2026. Again, as a reminder, our market statistics can be found on our Capital Topics’ website and in our team’s section on the PWL Capital website. We will provide the link to the market stats on the podcast page.

Starting with fixed income, the Canadian short‑term bonds, which are at the core of our fixed income portfolios, returned a modest 1.4% year‑to‑date, while the Canadian Universe Bond Index, which holds longer-dated bonds, delivered a slightly higher return of 2.1%. Over the last year, their performance was similar at 3.0% and 3.4%, respectively.

On June 30th , the yield on the benchmark 10-year Government of Canada bond was relatively unchanged since the beginning of the year at 3.37% versus 3.45% on December 31 ,2025.

James Parkyn:
I would add to that, Francois, that for investors with a sizeable percentage of their portfolios in bonds, these yields are quite compelling, especially compared with what was available during the pandemic years when the yields for the same bond were below 1%.

François Doyon La Rochelle:
I agree, James, and at least these yields are keeping up with inflation. Now turning to equities, in Canada, the S&P/TSX Composite was up 11.2% in the first half, driven mostly by the energy and the financial services sectors, which were up close to 25% and 21% respectively YTD. These two sectors have a huge impact on the TSX since they are the two largest constituents, representing a total of more than 50% of the index. However, what is surprising in the Canadian markets is that, contrary to other markets, especially the U.S., the information technology sector was struggling and has not kept pace with the AI story since the sector was negative 8.5% for the period.  For the last twelve months, the S&P/TSX Composite is up a massive 32.9%.

James Parkyn:

Wow, that’s an exceptional return. Now, Francois, what happened in the US markets?

François Doyon La Rochelle:

Well, James, the U.S. market is also up nicely YTD, reaching new all-time highs. As I mentioned earlier, the S&P500 and the Nasdaq had their best showing since the second quarter of 2020, climbing 15.5% and 21%, respectively, over the last quarter. YTD, the U.S. total market is up 10.9% in US dollars (14.8% in CAD). But what’s interesting here is that the markets are up despite the Magnificent Seven having a difficult first half. As a group, the Magnificent 7 are down 3.4% YTD as of June 29th. June was particularly difficult for several of the Mag 7 since Microsoft lost 20%, Nvidia 13%, and Apple and Amazon lost close to 8%. Together, these stocks have lost more than US $2 trillion only in June. And out of the seven stocks, only Alphabet (Google) had fared better than the S&P500 Index.

James Parkyn:

As you mentioned, François, that’s very interesting because, as a whole, these seven stocks represent roughly 1/3 of the S&P500.

François Doyon La Rochelle:

Yes, and that means that we are seeing a broader participation in the index. YTD, only 2 of the 11 sectors of the S&P500 Index were down, and 5 of the 11 sectors are showing double-digit returns. And what’s interesting is that large- and mid-cap value stocks and small-cap stocks are now outperforming their comparative growth indexes with performances of 20.3% and 26.9%, respectively, in CAD. Finally, for the last twelve months, the U.S. total market index is up close to 27.7%; that’s in Canadian dollars.

James Parkyn:

It’s very surprising to me Francois that given the AI story that value stocks in the U.S. have now outperformed growth stocks for the last 6 months and in fact for the last year. But then again, you never know when these things are going to turn. Now Francois, can you share with our listeners what happened in international developed and emerging markets?

François Doyon La Rochelle:

Well, James, developed international equities, measured by the MSCI EAFE, had a strong first half; they’re up almost 10% in Canadian dollars. In local currencies, it’s up 9.1%. There are also value stocks, and small-cap stocks have done well, increasing by 13.5% and 11.4%, respectively (in Canadian dollars). As for the emerging markets, they had a very strong first half, increasing by 28.4%, and over the last year, they are up almost 50% at 49.9%.

James Parkyn:

Wow, that’s really impressive- who would have thought? So, François, what’s the big lesson for investors?

François Doyon La Rochelle:

For me, James, it’s that markets rarely follow the script investors expect. Between the war in Iran, the oil price spike, the AI boom, the SpaceX mania, the Magnificent Seven’s negative performance, and the leadership change at the Fed, there were plenty of reasons to worry, and yet staying the course with a broadly diversified portfolio delivered solid returns.

James Parkyn:

Exactly, François, and as we always say, trying to time the market is a losing strategy. Staying invested, staying diversified, and sticking to your long‑term plan continue to be the best approach.

François Doyon La Rochelle:

Correct, and while we can’t predict what the second half of the year will bring, we can prepare for it by staying disciplined and grounded in evidence. And look, markets are sitting at all‑time highs, and the last decade has delivered returns way above what long‑term expected returns would normally suggest. This can make investors feel like it’s time to cash out or “lock in” gains. But that’s not the right strategy.

James Parkyn:

Exactly, the real question isn’t whether markets are high; it’s whether your portfolio still matches your time horizon, your risk tolerance and your capacity.

François Doyon La Rochelle:

Totally James. Big market run‑ups can quietly shift your allocation. Suddenly you’re taking on more risk than you originally intended. That’s why rebalancing is so important. It’s not about predicting what comes next; it’s about bringing your portfolio back to the long‑term asset mix that fits your needs. Rebalancing keeps risk in check, reinforces discipline, and helps you stay invested through whatever surprises the rest of the year will throw at us.

James Parkyn:

And Francois, that’s the key point for our listeners: stay disciplined, stay diversified, and stick to your plan. Markets don’t follow anyone’s script.

• CONCLUSION

François Doyon La Rochelle:

Thank you, James Parkyn for sharing your thoughts and expertise again today.

James Parkyn:

You are welcome, François.

François Doyon La Rochelle:

So, that’s it for episode #89 of Capital Topics!

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