Market Insights: Economic Indicators Improve

Macroeconomic and Market Developments: 

• North American markets were mixed over the last two weeks. In Canada, the S&P/TSX Composite Index inched up by 0.09%, while in the U.S., the Dow Jones Industrial Average decreased by 1.29% and the S&P 500 Index slipped, falling by 0.42%. 
• The Canadian Dollar increased over the last two weeks, closing at 71.34 vs. 70.46 cents USD two weeks ago. 
• Oil prices rose dramatically over the last two weeks, with U.S. West Texas Crude closing at US$81.70 vs. US$68.78 two weeks ago. 
• The price of Gold fell over the last two weeks closing at US$4,015 vs. US$4,187 two weeks ago. 
• U.S. inflation cooled sharply in June, with the Consumer Price Index falling 0.4%, its largest monthly decline since 2020, driven by a 5.7% drop in energy prices following the temporary U.S.-Iran ceasefire and the reopening of the Strait of Hormuz. More encouragingly, core CPI was unchanged, indicating easing underlying inflation beyond energy, while real hourly wages rose 0.8%, providing consumers with their strongest monthly purchasing power gain in several years. Although headline inflation remains elevated at 3.5% year-over-year, the softer report reduces near-term pressure on the Federal Reserve to raise interest rates, though renewed geopolitical tensions could keep inflation volatile.  
• U.S. retail sales rose 0.2% in June, meeting expectations and highlighting continued resilience in consumer spending despite recent economic uncertainty. Excluding the more volatile categories of autos, building materials and gasoline, core retail sales increased 0.4%, marking their strongest quarterly pace in three years and supporting expectations for solid second-quarter GDP growth. Lower gasoline prices weighed on headline sales but reflected falling fuel costs rather than weaker demand, while declining jobless claims and stronger manufacturing sentiment point to continued economic momentum heading into the second half of 2026.  
• Former Federal Reserve senior adviser John Rogers was sentenced to 38 months in prison after being convicted of making false statements to federal investigators about sharing restricted, non-public Federal Reserve information with individuals linked to Chinese intelligence. Prosecutors said Rogers secretly provided sensitive monetary policy information over several years in exchange for financial and personal benefits, highlighting growing concerns over economic espionage and efforts by foreign governments to gain strategic advantages through access to confidential U.S. financial and monetary policy information.  
• The Bank of Canada held its policy rate at 2.25%, citing signs that the economy is gradually improving despite nearly 18 months of stagnant growth. While Q1 GDP was weaker than expected, the Bank expects growth to rebound above 1% in the first half of 2026, supported by stronger exports, resilient consumer spending, and a pickup in residential investment. Policymakers continue to view U.S. trade policy and Middle East geopolitical tensions as the primary risks to the outlook, but noted that core inflation remains near the 2% target and excess labour market capacity should help contain broader inflationary pressures, allowing the Bank to maintain a cautious, data-dependent stance. 
• The Canadian government has paused new applications for the Parents and Grandparents Program (PGP) as it works to reduce processing backlogs and wait times, with more than 60,500 applications already in progress. While no new sponsorship applications will be accepted until further notice, the government said it remains on track to admit up to 15,000 sponsored parents and grandparents in both 2026 and 2027. Canadians can still bring eligible parents and grandparents to Canada temporarily through the Super Visa program, which allows visits of up to five years at a time. 

Weekly Diversion: 

Check out this video: Well Deserved! 

Charts of the Week: 

Economic momentum has strengthened meaningfully, with Bespoke Investment Group’s Matrix of Economic Indicators showing its strongest reading since October 2024. The latest “bottom-line” reading rose to +19, meaning a net 19 economic indicators are currently showing positive momentum. The index tracks the year-over-year change across 36 economic indicators (manufacturing, employment, housing, inflation, consumer), giving a broad view of whether the economy is improving or weakening beneath the surface. 

The relationship between economic momentum and one-year forward S&P 500 Index returns are not perfect. In fact, the scatter plot shows very little overall correlation between the bottom-line reading and the market’s next 12-month return. However, the strongest momentum readings have historically been followed by positive equity returns. Bespoke notes that when the bottom-line reading reached 20 or higher, the S&P 500 was positive one year later in 13 of 15 instances, with a median gain of 16.2%. 

Source: Bespoke Investment Group 

The following historical chart provides a more practical way to view the signal. It highlights the first time in each cycle that the bottom-line reading reached 19 or higher, with no similar occurrence in the prior 12 months. These periods have generally lined up with improving economic backdrops and have often preceded strong equity market gains over the next year. The most recent prior signal occurred in October 2024, shortly before tariff-related volatility, yet the S&P 500 was still up meaningfully one year later. 

Source: Bespoke Investment Group 

The next performance table shows that the S&P 500 has historically performed very well after these strong momentum signals. Across the prior episodes, the index was higher three months later, 100% of the time with a median gain of 5.9%. Six months later, the index was positive in all but one case with a median gain of 8.4%. One year later, the S&P 500 was positive in every prior occurrence with a median gain of 19.5%, which is well above average for all years. The sample size is small, including one large drawdown after the signal, but the consistency of the results is notable. 

Source: Bespoke Investment Group 

For investors, the takeaway is that economic momentum appears to be improving, which may provide a supportive backdrop for equities over the year ahead. While no single indicator should be used in isolation, stronger economic breadth tends to support corporate earnings, and as a result, investor confidence, and risk appetite. With the latest reading now at +19, history suggests the setup for stocks remains constructive, even though short-term volatility can certainly still occur. 

Sources: Yahoo Finance, First Trust, The Canadian Press, BNN Bloomberg, U.S. Department of Justice – Office of Public Affairs, Bespoke Investment Group

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DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past results are not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Opinions and estimates are written as of the date of this report and may change without notice.  Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner, or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.