Earnings, AI and emerging markets found another gear

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The second quarter of 2026 (and the first half of the year more broadly) offered investors a reminder that markets are often driven by fundamentals rather than headlines. Geopolitical tensions, volatile energy prices and shifting interest-rate expectations dominated the news cycle, yet global equities continued to advance as corporate earnings and economic activity remained stronger than expected. The result was a quarter defined less by the risks investors faced and more by the market's ability to absorb them.

How were earnings for U.S. and Canadian companies?

At the centre of the story was earnings growth. The S&P 500 gained 14.9% in U.S. dollar terms (13.4% in Canadian-dollar terms), while the S&P/TSX Composite Index advanced by 6.4%. The strength in equities was supported by resilient earnings expectations, with earnings growth coming in at 21% year-over-year for the S&P 500, up from 19% at the start of the quarter. Strong corporate results, coupled with expanding manufacturing activity and healthy consumer spending, gave investors confidence that the economic cycle remained on a solid footing.

Which sectors led market gains in Q2?

Another important development was the broadening of market leadership. Artificial intelligence remained a powerful investment theme, but returns became less dependent on a small group of mega-cap technology companies. Strength expanded across sectors, regions and styles, creating a healthier market backdrop than investors experienced through much of 2025. Financials contributed meaningfully in Canada, while industrials and other cyclical sectors gained greater participation in the United States.

How did emerging markets perform?

International markets also played a larger role in the global advance. Emerging markets were among the strongest performers, led by South Korea and Taiwan, as investors continued to gain exposure to the growing demand for AI infrastructure and semiconductor production. As concerns surrounding energy supplies eased late in the quarter, emerging markets rebounded sharply and outperformed many developed-market peers. Their success highlighted the increasingly global nature of the technology investment cycle and reinforced the value of geographic diversification.

What happened to fixed income markets?

Fixed income markets were comparatively quiet. Both the U.S. Federal Reserve and the Bank of Canada held rates steady, although expectations for monetary policy began to diverge. In Canada, weaker economic growth and moderating inflation have increased the likelihood of future rate cuts, while the U.S. economy continues to show greater resilience. This divergence contributed to a weaker Canadian dollar and reinforced the importance of maintaining diversified exposure across asset classes.

What can we expect for the rest of the year?

As we enter the second half of 2026, the outlook remains constructive. Manufacturing activity continues to expand, consumer demand remains healthy, and corporate earnings expectations are still moving higher. Markets may experience periods of volatility, as investors navigate seasonal weakness, political developments and evolving interest-rate expectations. However, the first six months of the year demonstrated that when corporate fundamentals and economic conditions remain supportive, markets can navigate uncertainty more effectively than many expect.

The defining feature of the quarter was not the absence of risk, but the ability of markets to absorb it. Earnings remained strong, leadership broadened beyond a handful of companies and regions, and investors who remained diversified were rewarded for looking through the noise. Find out more in our 2026 Second Quarter Market Review and Mid-Year Commentary.