(performance data as of June 30, 2026)
The tug-of-war continues. Will inflationary pressures stemming from geopolitical conflict dislodge global economic momentum, or will Artificial Intelligence (AI) capital expenditure continue to keep things afloat? A clear winner has yet to emerge, but evolving sentiment and expectations led to significant rotations across major asset classes in June, and the “Mag 71” are looking a lot more like the “Lag 7.”
Starting on the geopolitical side, the U.S. and Iran reached an interim Memorandum of Understanding (MOU) in mid-June. This 14-point document aims to ratchet down the military temperature, instituting an immediate ceasefire, reopening the Strait of Hormuz and beginning a 60-day negotiating window for the parties to attempt to agree on a more comprehensive long-term agreement. Investors welcomed the news as it signalled less imminent threat of escalation, but even after the MOU was signed, the back half of June continued to see military action putting the talks on thin ice. And, while any cessation of hostilities is welcome, a longer-standing agreement still seems a long way off. Near-term risks to energy prices seem to have improved at the margin, but questions remain as to whether traffic through the Strait can truly begin again in earnest. Reporting suggests that shipping companies are skeptical their vessels can transit the Strait safely and insurers similarly believe risks remain elevated – and rightfully so as headlines continue to emerge about ships being struck or needing to turn around. An emboldened Iran now realizes that, despite not possessing a nuclear weapon, controlling the Strait and stopping traffic is essentially a nuclear option now in their arsenal.
The new Chair of the U.S. Federal Reserve (Fed), Kevin Warsh, despite moving to provide far less future guidance relative to the Fed’s historical practices, addressed the persistence of inflation by emphatically stating, “inflation is a choice” and pledged that the Federal Open Market Committee (FOMC) “will deliver price stability.” And while the Fed didn’t change interest rates at its June meeting, investors further shifted expectations away from rate cuts and are now pricing in a growing likelihood of more than one 25-basis-point rate hike later this year.
Ruchir Sharma, Chair of Rockefeller International, penned an interesting article in the Financial Times2 making the case for why higher rates are needed. Over time, he claims, the Fed has only focused on employment and has made excuses for inflation – in essence, showing a bias towards easy money. To further his point, he quotes findings that the economy has hovered near full employment for 55 consecutive months: the Fed has missed its inflation target for 63 straight months – the latter being a pretty horrendous track record. Some people, Warren Buffett included, believe that even a 2% inflation target is too high. Buffett has said in the past that he prefers a 0% inflation target, as 2% annual inflation dramatically erodes savings and purchasing power over time. Still, inflation is currently stuck around 3%, and consumer prices have risen by 30% cumulatively over the last five years. Partly, this is because those in the easy money camp say that inflation is transitory and will pass once the supply shock of the day has been dealt with – the pandemic, Trump’s tariffs, the Iran war… but the problem is that there will always be another shock on the horizon. The next one could be El Niño, and the Fed should not keep accommodating each one, as higher prices are likely causing more pain than higher rates. And, while AI may considerably boost productivity and result in disinflationary pressures that keep overall inflation contained over the longer term, the current impact is inflationary as Information Technology( aka ‘Big Tech’) spending pushes up prices of everything from electricity, compute power, semiconductors, and more. Ruchir closes with his view that asset prices are running wild, benefitting the very rich, who in turn think that the Fed will always be there to bail them out at the slightest hint of trouble. The Fed has, historically, socialized market losses and placed no cap on gains. When you hear the term “Fed put”, that’s essentially what it refers to – the belief that the Fed will step in to support financial markets if asset prices fall too far or too fast.
SpaceX went public with its IPO on June 12, making it easily the biggest headline in markets over the month. The SpaceX IPO raised US$75 billion and secured a valuation in excess of US$2 trillion. The deal was 3x oversubscribed (meaning investor demand relative to the supply of shares offered was 3:1) and closed on listing day up 19%, briefly making it the world’s sixth largest company and Elon Musk the world’s first trillionaire. However, the “float” is only 4%, which, in finance parlance, means that only 4% of the company’s shares are traded publicly, with 96% still privately held. So, while much has been made about the staggering valuation and immediate entrance into the top of the league tables for largest companies in the world, the 4% float is important for context, particularly when we consider that SpaceX was, at one point, worth more than Amazon. Essentially what SpaceX and its investment bankers have done is created artificial scarcity to drive up the price of shares. It’s a page straight out of the Rolex playbook. Rolex could easily make and sell more watches, but they put people on long waiting lists and limit supply to create scarcity and command higher prices. So, in the case of SpaceX vs. Amazon, a US$75 billion of float vs. over US$2 trillion of float is a very different ballgame. As SpaceX works towards eventually having most, or all, of the float being public (which might take about a year), we won’t get a true valuation picture until sometime in 2027, but it seems pretty certain that the per-share price with only a 4% float is likely very rich relative to the price if considerably more shares were accessible in public markets. Add to that the fact that less than two weeks after its historic IPO, SpaceX has gone to the bond market for US$25 billion of funding to raise more cash to make massive bets on developing data centres in space. Interestingly, the interest rate on this bond issuance is well above those of groups with similar credit profiles, underscoring how investors are demanding a sizable premium to fund Musk’s moonshots.
Tying valuations back to higher interest rates, as tech heavyweights spend unprecedented amounts on AI infrastructure, if they wish to continue buying back shares they will increasingly have to borrow to do so. But with interest rates at current levels, and likely set to rise, this could put a lid on buyback activity, potentially meaning that a major source of share price support may have left the market.
Outside of the discussions of big IPOs and competing large language models (LLMs), much continues to be made about the increased use of AI within businesses and its potentially disruptive impact on employment. But a future of mass unemployment at the hands of AI productivity just doesn’t make sense. AI can certainly do and produce a lot of “stuff”, but that’s the supply side of the ledger. In a world of mass unemployment, demand evaporates, and companies no longer make money. It seems far more likely that as AI displaces certain workers, they will be freed up to do something else and the economy will change accordingly, meaning new jobs replacing the old, rather than mass unemployment. And for those companies significantly benefiting from the transformative wave of AI, perhaps Samsung is setting a new precedent for wealth distribution. A recent landmark deal has been approved by the company, where employees in its chips division can receive an average bonus of nearly US$400,000 each3.
Meanwhile, in Europe, arguably one of the bigger structural investment themes has gone into reverse. European defence stocks have come under pressure of late based on concerns that the continent won’t be able to fund its military spending plans, and as investors look instead to drone makers and companies more focused on modern, high-tech warfare4. The decline since January of this year marks a rather abrupt pullback from what had become one of the biggest trades in European markets in many years. As a result of the Iran war and the closure of the Strait of Hormuz, government borrowing costs have been rising as investors anticipate higher interest rates will be needed to combat lingering inflation. This has put spending plans under renewed scrutiny, while governments are also being pressured to provide relief to businesses and consumers hardest hit in Europe by higher energy prices, straining government budgets. As concerns grow that commitments will not translate into spending, institutional investors have unwound their overweight positions in the sector5.
If that weren’t enough for Europe, an economic bloc in need of some renewed growth vigour, its automotive industry is starting to look bleak. Hedge funds are now betting against some of Europe’s largest car manufacturers as they struggle with growing competition from China6. These funds have increased their short positions on the longer-dated bonds of companies such as Stellantis, VW, BMW and Mercedes-Benz, as Chinese competition, sluggish demand and U.S. tariffs pose long-term threats. “Investors are probably realizing that this isn’t a cyclical decline, but much more of a structural one…and they’re questioning whether the industry’s earnings power can ever return to pre-China-slowdown levels”, said Adrien Brasey, automotive equity analyst at Alphavalue7. Towards the end of June, VW announced it is targeting 100,000 jobs in one of the biggest-ever job-cut drives, while also ending production at four plants in Germany, as its cost-cutting plans significantly accelerate.
June began as a volatile month, with Information Technology heavyweights and semiconductor stocks correcting in the first week, though things stabilized as the month progressed. The Nasdaq 100 Index8 ended essentially flat, and the S&P 500 Index9 declined about 1%. Small caps (Russell 2000 Index10) performed best, as investors rotated out of mega-cap growth stocks and economic momentum fueled by the AI infrastructure buildout led to broader participation in the small-cap universe, particularly within industrial, engineering, equipment, software and technology companies. On one hand, the broadening out of returns is a good thing. For years, the massive concentration within the Magnificent 7 at the top end of the S&P 500 Index drove a sizable portion of overall returns and crowded out investment in other players. However, since the beginning of this year, the “Mag 7” look more like the “Lag 7”, down about 2.5%11 in aggregate versus the broader market up over 10%. The implications may be less rosy for concentrated investors. Still, those that have been diversified are now reaping the rewards, as are active managers who prudently avoided over-extending themselves in some of the largest benchmark names.
Canada was in the top half of markets tracked in June, up 0.5%, despite the Energy and Materials sectors down 4% and 12%, respectively. Offsetting those losses were strong gains in Financials (+8.8%) and Consumer Staples (+8.0%). At the halfway mark of the year, YTD returns remain highest within the Energy sector (+23.6%) despite recent weakness. With lingering supply shortages and countries onshoring production to improve their energy independence, oil prices could increase and benefit Canadian producers, particularly seen as stable partners amidst geopolitical turmoil. According to Sam Baldwin, Senior Portfolio Manager of Canadian Equity here at Guardian Capital LP, Canadian banks have done well recently for three main reasons. First, their earnings growth has been fantastic, with year-over-year growth likely coming in ~25%, with all divisions performing well, which is rare. Second, valuation multiples have risen to levels not seen in our careers as these companies have raised their return-on-equity (ROE). And third, money has been flowing back into Canada as we’ve outperformed the U.S. of late, and with banks now about 25% of the benchmark, a good portion of each incremental dollar invested goes their way. The bottom line from an investment standpoint is that if you slap a high multiple on “peak earnings”, supported by passive flows and a seller’s strike (fund managers not wanting to sell a large, high momentum part of the market for fear of underperforming), then you get froth…not the sorts of stocks Sam is looking for today, feeling there are better opportunities elsewhere. The three top-performing stocks in June were Blackberry (+44.9%), Jamieson Wellness (+18.4%) and Alimentation Couche-Tard (+16.1%), with BMO posting the strongest return amongst the big banks (+11.9%).
In the U.S., the Industrials and Health Care sectors performed best, up 7.3% and 6.6%, respectively, with Energy and Communication Services faring the worst, down 5.1% and 7.8%. The Information Technology sector was a detractor, underperforming the S&P 500 Index (-3.3% vs. -1.0%). The best-performing stocks in the S&P 500 Index in June were Applied Materials (+60.7%), KLA Corp (+57.0%) and Moderna (+48.4%). Meanwhile, on the SpaceX IPO, the offering price on June 11 was US$135/share, and the initial trading price was $150/share. It quickly shot above US$200/share in its first couple of trading sessions but has since come back down close to US$160/share as at the time of writing.
International equities, as measured by the MSCI EAFE Index12, were one of the better-performing markets in June, up 2.4%. The Information Technology sector led the way, up nearly 13%, while Energy and Communication Services were at the bottom end, similar to the U.S. market, down 7.3% and 8.6%, respectively. Top-performing stocks included Screen Holdings (+60.1%, Japan, Technology), Pro Medicus (+53.8%, Australia, Health Care) and Tokyo Electron (+47.2%, Japan, Technology). Referring back to the headwinds facing the European automotive industry, Stellantis (-27.5%), BMW (-23.5%), Volkswagen (-17.9%) and Mercedes-Benz (-15.9%) were hard-hit. Meanwhile, regarding defence companies, Rheinmetall (-23.4%, Germany) and BAE Systems (-8.9%, UK) were no better off.
From an equity factor standpoint, June was a market heavily favouring Momentum, which, up 7.8%, left all other factors in the dust. Growth was the only negative factor, down 0.5%.
On the currency side, the continued decline in oil prices in June and easing of Middle Eastern tensions were both a boon to the US dollar. USD rose 3.0% vs. CAD and 2.2% vs. a basket of global currencies.
After rallying in May, fixed income markets were a bit more modest in June with not a great deal of return dispersion across sub-sectors.
There was much ado about nothing when looking at changes to the yield curves both in Canada and the U.S., outside of some marginal increases in shorter-dated U.S. Treasuries in June. As mentioned previously, the U.S. Fed left rates unchanged at their latest meeting, so the target rate remains at 3.50-3.75%. Aside from the shortened commentary and lack of forward guidance from the Fed this time around under Kevin Warsh, it was also interesting to note that the decision to leave rates unchanged was a unanimous one – the first time that’s happened since last June. The Fed commented that economic activity has been expanding at a solid pace despite elevated uncertainty. Productivity growth and capital investment are both strong. Job gains have kept pace with the workforce, and inflation remains elevated but will be dealt with, as reiterated by the Chair’s comment that the FOMC “will deliver price stability”.
The Bank of Canada (BoC) similarly held rates steady at 2.25% at their June meeting. Economic growth undershot expectations, with the BoC stating, “economic activity has been weak, and uncertainty about U.S. trade policy persists”. While headline inflation has increased, they commented that so far there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices. They are continuing to look through the Iran war’s near-term impact on headline inflation, though they have committed to not allow higher energy prices to become persistent inflation.
1 The Magnificent Seven (Mag 7) are Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla
2 Financial Times, “The populist case for ending easy money now”, June 15, 2026.
3 Financial Times and Pushkin, Unhedged Podcast, “The chip and memory stock frenzy”, May 28, 2026
4 Financial Times, “European defence stock rally hits reverse on funding fears”, June 16, 2026
5 Ibid.
6 Financial Times, “Hedge funds short Europe’s auto sector on China fears”, June 18, 2026.
7 Ibid.
8 The Nasdaq-100 Index® includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.
9 The S&P 500 is an index of 500 stocks designed to reflect the risk/return characteristics of the large-cap U.S. equity universe.
10 The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index.
11 Performance YTD of the Roundhill Magnificent Seven ETF in USD terms, which is a U.S. listed ETF offering equally-weighted exposure to Apple, Amazon, Alphabet, Meta, Microsoft, NVIDIA and Tesla.
12 The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. and Canada.
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Published: July 10, 2026
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