Uncertainty continues to hang over the Canadian economy as it slipped into a technical recession in the first quarter. Global market volatility remains high, driven largely by ongoing geopolitical tensions. These conflicts have caused energy prices to spike, which in turn has impacted both consumer behaviour and overall economic growth. Despite these unexpected escalations, we maintain a positive outlook on several key themes identified at the start of the year.
Outlook
| MID-YEAR HIGHLIGHTS |
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Energy: A Vital Economic Hedge
While rising fuel and business costs were undeniable, Canada’s economy found a powerful silver lining in the energy surge. Because the energy sector is a cornerstone of the S&P/TSX Index, those higher prices acted as a vital economic hedge, effectively transforming market volatility into a growth engine. In fact, energy has outperformed every other sector in the market, as illustrated below.1
Source: Morningstar as of May 31, 2026
As we discussed in our published piece “Canada’s Strategic Energy Advantage” earlier this year, this trend has drawn further attention to Canada’s role as a reliable energy supplier, especially given the nation-building projects currently underway. We expect these discussions to remain relevant even after the crisis in the Middle East cools down.
Trade Uncertainty and CUSMA Negotiations
Trade dynamics are a significant focus as CUSMA negotiations 
are slated for a formal review in July of this year. Heading into these talks, U.S. tariffs remain on Canadian steel, aluminum, automobiles and softwood lumber. While trade discussions have begun between Canada and the U.S., separate negotiations between the U.S. and Mexico have raised fears that independent deals could be struck. This scenario could potentially expose all Canadian exports to a 10% blanket tariff. Key U.S. demands include increased U.S. and regional content requirements for automobiles, greater access to the Canadian dairy market and an end to rules requiring U.S. streaming platforms to fund and broadcast domestic Canadian content. We expect CUSMA to be a large focus for investors in the coming months, and we will be paying close attention to how this plays out.
Resilience in the Banking Sector
We maintain a positive view of Canada’s banking sector, which has demonstrated resilience during the volatility of the first half of the year. This stability is largely attributed to solid fundamentals within the sector. However, the looming CUSMA review introduces structural headwinds for the banking sector, as potential cross-border credit strains could ripple into domestic loan portfolios and the labour market. Despite our favourable view of this sector in the short term, valuations of Canadian banks remain elevated.
Gold: Navigating Inflationary Pressures
Gold Gold started the year strong, peaking at US$5417.21/oz in January.2 
However, it dropped significantly in March3 as higher inflation expectations prompted by the Iran/U.S. conflict led markets to scale back expectations for rate cuts this year. Prior to this escalation, investors had expected multiple rate cuts in 2026; however, the surge in oil prices has led to fears of higher inflation and more restrictive monetary policy. We expect continued volatility in gold prices in the short-term due to the uncertain outcome of the U.S./Iran conflict. Historically supportive factors, such as increased demand from central banks and ongoing geopolitical uncertainty, should continue to be supportive of gold prices.
Download the full Empire Life 2026 Semi-Annual Market Outlook (PDF).
1 Bloomberg, April 27, 2026
2 Bloomberg, January 28 2026
3 Bloomberg, April 27, 2026
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Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. is the Portfolio Manager of certain Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company.
June 2026