^InsightsMonthly Market Wrap – August 2026

Introduction

Summer ended on a decisively positive note for investors. After a turbulent July, equity markets resumed their upward trend in August, supported by one of the strongest earnings seasons in a generation, a resilient global economy, and a spectacular rally in gold that carried the Canadian market to new heights. The gains were earned against a complicated backdrop: Canada-U.S. trade negotiations broke down late in the month, long-term bond yields pressed toward generational highs, and the conflict in the Middle East entered its sixth month with energy inventories still being drawn down. The result is a market that is fundamentally well supported but faces a busier list of risks to navigate this autumn.

Equity Markets

Performance as of August 31st, 2026

Total returns as of August 31, 2026. Source: Morningstar Direct

U.S. equities advanced 2.6% in August, lifting the S&P 500 to a fresh record high and a 12.3% gain for the year. The rebound was broad but led by Energy, up 7.0%, Information Technology, up 6.2%, and Materials, up 6.0%, while Industrials and Utilities lagged. The fuel was a standout second-quarter earnings season in which index constituents reported earnings per share growth averaging roughly 50% year over year, paced by the energy, communication services and consumer discretionary sectors. Growth stocks recovered as well, with the Russell 1000 Growth index rising 3.7%, although its 3.7% year-to-date return still trails the broader market after the summer pullback in the artificial intelligence complex; small caps added a more modest 0.9% but remain this year’s leader at 19.1%.

Chart 1 – Source: NBC CIO Office (data via Refinitiv)

Canadian equities proved remarkably resilient. The S&P/TSX Composite gained 3.0% in August and reached a record high on August 25, bringing its year-to-date return to 14.4%, despite the breakdown of Canada-U.S. trade talks on August 21 and a new round of 50% tariffs imposed under Section 338 of the Tariff Act of 1930 on roughly 5% of Canadian exports to the United States. Leadership was concentrated in Materials, up 25.8% on the month as gold rallied from around US$4,000 to above US$4,500, and in Information Technology, up 12.9%, while rate-sensitive and defensive sectors declined and the banks gave back some of their strong year-to-date gains. Energy remains the top Canadian sector of 2026, up more than 30% on a total-return basis, supported by elevated crude prices and Ottawa’s renewed focus on resource development.

Chart 2 – Source: NBC Economics and Strategy (data via Refinitiv)

International markets participated in the advance. The MSCI EAFE index added 1.8% in August and is now up 11.8% year to date in U.S. dollar terms, while emerging markets gained roughly 3% on the month and retain their position at the top of the 2026 leaderboard with returns above 24%. Emerging Asia has experienced heightened volatility given its heavy exposure to the artificial intelligence supply chain, yet it remains the strongest regional performer this year.

The earnings backdrop is the market’s foundation, and it is both impressive and demanding. Expected S&P 500 earnings have risen nearly 38% over the past year, a performance without precedent outside post-recession rebounds, and consensus still calls for global earnings growth of about 20% over the year ahead. Expectations are steepest in technology, where earnings are projected to grow more than 40% over the next twelve months, and with forward price-to-earnings multiples near 20 the equity risk premium has turned negative for the first time in more than two decades. Encouragingly, valuations for the largest artificial intelligence beneficiaries have actually compressed, suggesting investors are not extrapolating recent profitability blindly, but the margin for disappointment is thin.

Chart 3 – Source: NBC CIO Office (data via Refinitiv)

Fixed Income and Credit

The Canadian fixed income universe eased 0.2% in August, leaving its year-to-date return at 0.4%, as growing concerns over government debt levels and central bank credibility, particularly in the United States, pushed long-term yields higher; long-term Canadian bonds declined 0.9% on the month. Policy rates were unchanged on both sides of the border, with the Bank of Canada’s overnight rate at 2.25% and the U.S. federal funds target at 3.75%. U.S. corporate bonds fared better than governments, benefitting from shorter duration and higher yields to maturity.

Sovereign debt is now the bond market’s central preoccupation. Thirty-year U.S. Treasury yields briefly reached their highest level since 2007 in mid-August before an expanded Treasury buyback program for longer-dated debt helped contain the move, and the ten-year yield finished the month just above 4.7% with the term premium at a twelve-year high. Markets are also weighing the possibility of a September rate increase from a more inflation-focused Federal Reserve, a probability recently priced near two-thirds, although there remains a credible case that policymakers stay on hold before eventually easing in 2027. In Canada, by contrast, rate-hike expectations have faded, and a gradual return of the overnight rate toward neutral is anticipated by mid-2027.

Chart 4 – Source: NBC CIO Office (data via Refinitiv)

Credit markets remained well behaved through the rate volatility. U.S. investment-grade corporates returned 0.4% in August and high yield gained 1.0%, extending its year-to-date advance to 2.6%. Corporate balance sheets are broadly healthy, and the largest technology issuers now bringing substantial long-dated supply to market carry credit ratings that rival, and in one case exceed, that of the U.S. government. Even so, with spreads offering limited compensation for risk, an emphasis on quality issuers and security selectivity remains warranted.

Commodities and Currencies

Energy markets were outwardly calm but structurally tight. WTI crude ended August little changed, up 1.0% on the month yet still 52.0% higher year to date in the low-to-mid US$90s, with U.S. strategic petroleum reserves at a record low and commercial inventories being steadily drawn down six months into the Middle East conflict. The greater pressure sits in refined products, where Ukrainian strikes on Russian refining capacity and constrained global refining margins have driven diesel prices up roughly 95% since late 2024, an important channel through which energy can feed inflation. Gold was the month’s standout, surging 13.3% to bring its year-to-date gain to 5.6%, propelled by geopolitical tensions, central bank purchases and softer U.S. economic data, while copper added 4.4% and is up 16.0% this year on the structural demand tailwind from data-centre and electrification buildouts tied to artificial intelligence.

Chart 5 – Source: NBC CIO Office (data via Refinitiv)

In currency markets, the U.S. dollar slipped 0.5% on a trade-weighted basis after a notably weaker July payrolls report reduced the likelihood of near-term Fed tightening. The Canadian dollar appreciated 1.2% against the greenback despite the trade impasse, helped by elevated commodity prices and a trade balance that has swung back into surplus, and is now down just 1.0% year to date with USD/CAD near 1.39. For Canadian investors, a firmer loonie modestly dampened returns on unhedged foreign holdings in August, and the medium-term outlook points to further loonie strength toward 1.35 per U.S. dollar by spring 2027, contingent on progress in North American trade negotiations.

Economic Overview

United States

The U.S. economy continues to run at two speeds, and the fast lane is doing the heavy lifting. Real GDP is expanding at a cruising speed of close to 3% according to the Federal Reserve’s weekly index, powered by artificial intelligence investment: AI-exposed companies are on track for capital expenditures of roughly US$800 billion this year, and those intentions are visible in a sharp rise in orders and shipments of non-defence capital goods. The rate-sensitive economy tells a different story, with residential investment down 18.2% from its early-2021 peak and non-residential structures investment having contracted for nine consecutive quarters. On balance, growth of 2.2% is projected for both 2026 and 2027.

Chart 6 – Source: NBC Economics and Strategy (data via the BIS and Bloomberg)

The consumer is holding up its end. Nominal retail sales rebounded at a 12.1% annualized pace over the three months ending in June, the best performance in four years, while wage growth near 3.5% sits comfortably within the range consistent with price stability, a sign the labour market remains broadly balanced. Inflation is the complication: headline readings are expected to stay near 3.5% through the third quarter as energy costs filter through, even as core pressures run closer to 2.5%, and the Federal Reserve under Chair Warsh has adopted a visibly more hawkish posture. The policy debate through the autumn will centre on whether tightening into a moderating inflation trend risks fighting yesterday’s battle.

Canada

Canada’s recovery gathered credibility over the summer. Real GDP is estimated to have grown about 2.5% annualized in the second quarter, the strongest expansion in five quarters after two consecutive contractions, driven by a rebound in exports and a resurgence in business investment. The labour market has firmed alongside it, with 88,000 jobs added in May and a further 18,000 in June, an unemployment rate down to 6.5%, and employment among prime-age workers reaching a record high in July even as the overall population contracts.

Chart 7 – Source: NBC Economics and Strategy (data via Statcan)

Inflation gives the Bank of Canada room to be patient. Core inflation fell below 2.0% in June for the first time since 2020, and with economic slack still evident the policy rate is expected to remain at 2.25% through the end of 2026 before a gradual return toward neutral by mid-2027. Trade policy is the dominant risk: talks broke down on August 21, new 50% U.S. tariffs now apply to roughly 5% of Canadian exports, nearly doubling the average tariff rate on Canadian goods to about 6%, and Canadian retaliation has been deferred to early September, leaving a narrow window for de-escalation. The baseline forecast of 0.7% growth in 2026 and 1.5% in 2027 assumes these measures ultimately do not stick, a reasonable assumption given that Canada is the leading export destination for 27 U.S. states, while Ottawa’s reindustrialization agenda, anchored by resource development and a structural increase in defence spending, continues to support business confidence.

Chart 8 – Source: NBC Economics and Strategy (data via StatCan and Bloomberg)

Bottom Line

August reaffirmed the bull market’s foundations. Solid economic growth, record corporate earnings, a balanced labour market and an artificial intelligence investment cycle that remains firmly on track allowed equities to consolidate their clear lead over fixed income, with Canadian assets, from the loonie to the S&P/TSX, holding up impressively despite sixteen rounds of tariff announcements since late 2024.

The risk list has nonetheless lengthened. Bond markets are demanding greater clarity from both a U.S. administration prone to improvisation and a Federal Reserve weighing a rate increase, and persistent pressure on long-term yields is the most credible threat to elevated equity valuations. Closer to home, the Canada-U.S. trade standoff could escalate if retaliation proceeds in September, refined-product prices remain a live inflation channel, and the run-up to the U.S. midterm elections has historically brought choppier trading.

In this environment, we remain focused on maintaining diversification across asset classes, regions and currencies, emphasizing quality investments with durable earnings and strong balance sheets, and preserving flexibility within portfolios. The past month rewarded patience over reaction, and we are prepared to treat any renewed weakness as an opportunity rather than a threat, while monitoring closely the developments that would change our assessment.

Sources Used

• Index Performance – August 2026 (Excel, Morningstar Direct)

• Asset Allocation Strategy, CIO Office, September 2026 (“Three reasons to worry – or not?”)

• Monthly Equity Monitor, NBC Economics and Strategy, September 2026

• Monthly Fixed Income Monitor, NBC Economics and Strategy, July/August 2026

• Forex, NBC Economics and Strategy, August 2026

• Monthly Economic Monitor – World / U.S. / Canada, NBC Economics and Strategy, July/August 2026