Market Recap: U.S. and Canada

I’m not sure what to make of this week’s crazy stock market chart, The U.S. markets were closed Friday to observe Juneteenth National Independence Day, and returns for the first part of the week were all over the map. The volatility was highlighted Wednesday when Warsh's Fed delivered a dot plot that leaned more hawkish than many had expected, triggering a steep intraday sell-off across all indices. The decline was sharp, especially in tech, but buyers stepped in and markets recovered well. The Nasdaq 100 was the standout performer for the week, finishing with clear separation from the rest of the pack.

Let’s look at the numbers: The Nasdaq 100 led with a weekly gain of 2.60%. The S&P 500 gained 0.93%, the Dow Jones finished up 0.71% and the TSX lagged, closing up 0.13%.

Major Economic Stories This Week

Fed Holds, But The Dots Have Moved

The FOMC held the federal funds rate at 3.50%-3.75% for a fourth consecutive meeting.

In Kevin Warsh's first meeting as Fed Chair, the committee voted 12-0 to hold, which was widely expected. What wasn't fully priced was the shift in the dot plot: nine of the 18 participating officials now project at least one hike by year-end, and six see two hikes. That's a real departure from March, when the median still pointed to a cut. PCE inflation for 2026 was revised sharply higher to 3.6%, up from 2.7%, driven largely by elevated energy prices tied to the Middle East conflict. Warsh didn't submit his own rate projection, so we can't read his personal lean from the dots. He also shortened the policy statement and stripped out forward guidance, so we see a deliberate change in how the new chair plans to communicate.

• Rate held at 3.50%-3.75%, fourth consecutive pause at this level

• 2026 GDP growth forecast lowered to 2.2%, down from 2.4% in March

• 2027 GDP forecast unchanged at 2.3%

• 2027 PCE inflation revised to 3.3%, up from 2.7% in March

US Retail Sales Come In Hot

American consumers delivered a strong May, with retail sales up almost 1%.

Consumer spending held up better than expected in May. Retail sales rose 0.9% month-over-month, well ahead of the 0.5% forecast and above a downwardly revised 0.4% gain in April. Gas stations led the charge with a 3.4% jump as fuel prices remained elevated from the Iran conflict. Strip out gas and sales still rose a firm 0.7%, led by miscellaneous retailers, nonstore retailers, and auto dealers. The control group, which excludes autos, gas, building materials, and food services and feeds directly into GDP calculations, rose 0.7% after a 0.5% gain in April. The consumer is absorbing inflation pressure better than many expected.

• Autos: up 1.2%, one of the stronger category performers in May

• Electronics and appliances: down 0.5%, the steepest category decline

• Food services and drinking places: down 0.1%, a small but notable softening

• Nonstore retailers: up 1.5%, continuing a steady run

Canadian Retail Trade Heads For A Fifth Straight Gain

Canada's retail sales rose 0.5% to C$73 billion in the confirmed April reading

Canada's retail sector is holding up. April sales landed at C$73 billion, a 0.5% gain, revised slightly lower from the initial 0.6% estimate. The preliminary read for May is 1.0%, which if confirmed would mark five straight months of growth. The standout in April was the energy component: gasoline stations and fuel vendors jumped 5.1% to C$7.51 billion, reflecting both a 0.8% increase in volume and sharp price gains from the Iran conflict. On the weaker side, food and beverage stores fell 2% to C$13.27 billion, a category decline worth monitoring as energy costs continue to pressure household budgets.

• Health and personal care retailers: up 1.2% to C$6.58 billion in April

• Building supplies and materials: up 3.3% to C$3.81 billion

• Furniture, electronics and appliances: up 0.7% to C$3.4 billion

• Five consecutive monthly gains if May's 1.0% preliminary is confirmed

TOP INSIGHTS

The Dot Plot Just Changed The Rate Narrative

The direction of U.S. rates is starting to become clearer.  Nine of the 18 officials who submitted projections are pencilling in at least one hike, which shifts the median toward tightening. The median year-end forecast for the federal funds rate is now 3.8%, a quarter-point above where it sits today. PCE inflation at 3.6% for 2026 is running well above the Fed's 2% target, and the energy shock from the Iran conflict isn't fully resolved.

The practical effects on households and investors are real. Variable-rate borrowing, whether that's home equity lines, adjustable mortgages, or business credit facilities, won't get cheaper with rate hikes. For equity investors, higher rates compress multiples, especially for growth and tech stocks which continue to trade at stretched valuations. Canadian homeowners facing mortgage renewals are already in a difficult spot; rising rates make that math harder.

I think the Fed hikes once before year-end, most likely in September. An interesting twist this month is Warsh's removal of forward guidance from the statement.  That tells me he's keeping his options open, and his decision not to submit a personal dot projection reads as deliberate ambiguity rather than indecision. What I'm watching: the PCE reading in late July and oil prices in the wake of the US-Iran ceasefire talks. If energy cools and PCE tracks lower, September becomes a genuine coin flip. If it doesn't, we have a live hike on the table.

Consumers Are Holding Up, But The Energy Story Deserves Attention

Both the US and Canadian retail numbers this week came in ahead of expectations. The US delivered 0.9% on the headline and a clean 0.7% in the control group. Canada's preliminary May reading is 1.0%. When you strip out energy in both cases you're still seeing genuine consumer activity. That's a more encouraging finding than the headlines suggest, and than what I would have thought: higher fuel prices haven't triggered a broad spending retreat, at least not yet.

One issue is that a resilient consumer cuts both ways. Strong retail data is good for corporate earnings and GDP, but it's also what reduces the urgency for rate cuts and gives hawks on the FOMC more cover. For Canadian households, the mortgage renewal wave building through 2026 is a real pressure point ahead. Those renewals are going to sting. The question is how much spending flexibility is left afterward.

My thoughts are that Canadian consumer spending should soften in Q3 and Q4 as mortgage pressure mounts, while US consumer resilience holds a bit longer given the stronger labour market. Full disclosure:  I’ve been wrong on this topic for a while now.  The two data points I'm watching are food services and electronics, both of which showed small declines in May. Those categories tend to move early when consumers are starting to pull back. If those numbers stay weak through June, it may force me to revise my view on the second half.

Energy Is The Common Thread Running Through Every Dataset This Week

The thread connecting every release this week is energy. Gas stations led US retail sales with a 3.4% jump. Gasoline and fuel vendors in Canada rose 5.1%. The Fed cited elevated energy prices in its statement and raised its 2026 PCE forecast by 90 basis points from March. In each case, the Iran conflict is the driver. What stands out to me is the persistence: even with an interim ceasefire in place, energy prices have been sticky enough to move the Fed's full-year PCE projection by nearly a full percentage point.

Energy-driven inflation creates a genuine policy dilemma. The Fed's tools address demand, but not supply shocks. But the committee can't realistically look past headline PCE running at 3.6% if it starts to feed into wage expectations and core services. The consumer is absorbing fuel costs for now, but every dollar going to the pump is a dollar not going to a restaurant, a clothing retailer, or a home appliance. The early softness in food services and electronics in the US data is a small signal worth tracking.

The energy variable is the most important unknown in the second half of 2026. If the Iran ceasefire holds and oil prices normalize, PCE tracks back toward 3% and the case for rate hikes weakens considerably. If the ceasefire breaks down or prices stay elevated, we're looking at the worst of both worlds: persistent above-target inflation alongside slowing growth. The spread between those two outcomes is enormous, and, at least in my opinion, the current market positioning doesn’t reflect the whole picture.

TOP STORY
Kevin Warsh's Fed Debut Shifts The Rate Narrative

• Fed holds rates at 3.50%-3.75% for fourth consecutive meeting

• Nine officials pencil in at least one 2026 rate hike

• Warsh skips his own dot plot in an unusual first-meeting move

• Markets sell off sharply then recover as hawkish projections land

President Trump is watching.  Kevin Warsh's first meeting as Fed Chair produced a unanimous 12-0 hold, but the projections underneath gave us a solid clue as to where rates are headed. Nine of the 18 officials who submitted rate forecasts now expect at least one hike before year-end, with six pencilling in two. That's a direct inversion of where the committee stood in March, when the median still pointed toward a cut. Stocks sold off and short-term bond yields jumped immediately after the announcement, before markets partially recovered. As I just noted in the economic update above, PCE inflation for 2026 was revised sharply higher to 3.6%, with energy prices from the Middle East conflict cited as the primary driver. Warsh himself chose not to submit a personal rate projection, an unusual move that tells you he's not ready to signal his lean publicly. He’s not pushing back against his boss, at least not yet.

The Statement Got Shorter, And The Guidance Is Gone

After the announcement, Warsh wasted no time reshaping how the Fed communicates. The policy statement came out noticeably shorter than what markets had grown used to, with forward guidance language stripped out entirely. He described it directly: shorter, simpler, and free of older language that had outlived its purpose. He also announced five internal task forces to review Federal Reserve operations and policy processes. The 12-0 unanimous vote stands in contrast to the 8-4 splits that marked earlier meetings this year. Whether that unity reflects genuine alignment or deference extended to a new chair on his first day, it's a different dynamic than we've seen.

The Rate Cut Trade Is Off The Table For Now

The market's base case has shifted. Fed-funds futures now price a real probability of at least one rate hike by December, a turnaround from earlier this year when one or two cuts were the consensus view. The median forecast puts the year-end federal funds rate at 3.8%, a quarter-point above today's range. Goldman Sachs's global co-head of fixed income noted that half the FOMC expects rate hikes this year, reflecting strong labour market and inflation data even with recent oil price pullbacks. The rate cut trade that defined investor positioning earlier in 2026 is now on the back shelf.

Full story here.

With PCE at 3.6% and the Fed's dot plot pointing toward hikes, the second half of 2026 is presenting a real tug-of-war between sticky inflation on one side and a potential growth slowdown on the other. Mortgage renewals, higher rates, and softening consumer categories are all in the mix, and reasonable people are landing in very different places. What’s the biggest risk of these conditions? Tell me what you think. Please vote on this week's question:

LAST WEEK’S POLL RESULTS

In last week's poll, I asked what you'd do if you were allocating capital to SpaceX today. The majority of you would either wait for a pullback (42%) or avoid the stock entirely (46%), with just 12% ready to buy at current valuations. Thanks to everyone who voted.

READER COMMENTS

"Avoid entirely! From the current ~$2T valuation, the risk-return just doesn't work for me... Risks including poor corporate governance (imo), massive cash burn, expected dilution (imo), a ridiculous IPO valuation (imo), potential Tesla merger and potential for regulatory pushback in the future far offset even the pie in the sky positives IMO.
Not to mention, Elon Musk's company's have collectively lost money, so I'd like to see that change before contributing to the trillion+ fortune he's made running a collection of businesses with net historical losses." — callawayguy

"Too dependent on US Gov. interference to make money. Story this weekend is about Musks dependence on US government for his wealth. The "Orange Iguana" is also loading his pockets. I've liquidated all my US holdings over 1 year ago & started purchasing my new trading partners & my portfolios are doing very. very well. I am done with the US they will never change, its why so many Americans are leaving the US." — entender1012

"There are toxic assets hidden within the structure of SpaceX, and their total addressable market predictions are the stuff of science fiction." — sub

Wait for a pullback

"Brand new company it needs to find its footing. Plus a lot of people in coming months to a year will want to get out to realize some of the gains." — angellodarko

"Given that Elon makes a lot of promises about the moon and mars and hasn’t delivered on them...it's hard to take SpaceX seriously. These missed promises seem to be baked into the price. It does have revenue! So that's a thing on the plus side. It also had massive debt; this IPO seems to take care of that, I understand...as in without this IPO SpaceX would go bankrupt, perhaps? It would have to pull back a lot." — mrrobpog

THE MARKETS

A Big Fat Asterisk Hangs Over This Rally

• Just 35% of S&P 500 stocks have outperformed the index in 2026

• Tech now exceeds 39% of the S&P 500's total market weight

• Shiller PE sits at 41.3, near the dot-com bubble peak of 44.2

• Market leadership is the narrowest it's been in roughly 30 years

The S&P 500 is up around 9% for the year, and the Nasdaq 100 had another strong week. But underneath the surface, the rally is both narrow and expensive. A Scotiabank analysis found that only 35% of S&P 500 stocks have outperformed the index in 2026, and of the top 20 performers over the past two months, 18 were tech names. US equity ETF inflows have topped $600 billion year-to-date, with Nvidia alone pulling in over $22 billion. The Shiller PE ratio sits at 41.3, just a notch below the all-time high of 44.2 set at the peak of the dot-com bubble, and CPI came in at 4.2% in May, the highest in three years.

When Concentration Reaches This Level, Risks Compound

Kim Shannon, founder of Sionna Investment Managers, described the current environment as one of "the three great speculative manias in the past century." The technology sector now accounts for over 39% of the S&P 500's total market cap, a record share. Analysts at Scotiabank have drawn comparisons to the 1999-2000 script, noting the risk of replaying that period if the Fed raises rates aggressively into the peak of a tech-driven run. Nvidia, Microsoft, and Alphabet are strong businesses, but the concern lies in what happens to their multiples when rates stay higher for longer or earnings growth disappoints against stretched expectations.

Higher Rates Are Now A Real Headwind For Tech Valuations

This week's Fed meeting added a direct headwind the market didn't fully account for. Rate cuts had been baked into the valuation case for tech stocks, and that case is all but gone. I mentioned in the economic update above that the dot plot has shifted toward hikes and PCE is running at 3.6%. Higher rates compress the multiples investors are willing to pay for future earnings, and with the Shiller PE near all-time highs, there's not much room for error. The Globe and Mail's question is the right one: what's actually sustaining a rally this concentrated, this expensive, and this exposed to a rate shock?

Read the full story here.

TECHNOLOGY
Industry Backs The Chip Security Act Against China

• Six firms back the Chip Security Act in a letter to Congress

• Bill requires location verification on America's most advanced AI chips

• Semiconductor industry groups oppose the measure over competitiveness concerns

• DeepSeek reportedly used restricted Nvidia chips to train its AI model

A group of six companies specializing in tracking international shipments of sensitive technology sent a letter to congressional leadership this week backing the Chip Security Act. The bill would require America's most advanced AI chips to include built-in location verification and security mechanisms designed to prevent diversion to China and other adversaries. The letter argues the Act would close key loopholes in US export control law and strengthen American chip companies' competitiveness, pushing back against semiconductor lobbying groups who claim the requirements would constrain the industry. The Semiconductor Industry Association has opposed the bill, arguing that mandating untested on-chip security mechanisms could undermine global trust in American semiconductor products.

DeepSeek Started This. The Numbers Make The Case.

The Chip Security Act traces directly to the House Select Committee on China's investigation into DeepSeek, which concluded the Chinese AI model was built using restricted Nvidia chips smuggled into the country. An estimated 140,000 advanced chips worth $5-7 billion were reportedly diverted to China in 2024 alone. The bill passed the House Foreign Affairs Committee in March 2026 with bipartisan support and directs the Commerce Department to require reporting on credible diversion incidents, while giving export enforcement authorities direct jurisdiction over violations. White House AI Czar David Sacks has pointed to the issue in no uncertain terms, and he argues that chip companies often look the other way on smuggling because it's profitable.

The Real Debate Is Inside The Private Sector

Washington's position is fairly unified: chip smuggling needs to stop. The divide is within the private sector. On one side, major semiconductor lobby groups warn that mandatory tracking requirements would raise costs and erode global competitiveness. On the other, the six firms backing the bill argue that robust verification actually expands export markets by giving buyers and allied governments confidence they're operating within US law. The bill's supporters frame security and competitiveness as complementary, not competing. The outcome of that debate has real consequences for Nvidia and every US chip company trying to navigate export restrictions while competing globally for AI infrastructure contracts.

Learn more here.

The Relative Strength Indicator (RSI) can provide a signal that suggests a stock is either overbought or oversold.
📈A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell.
📉A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

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