Jean-François Dumais*, Investment Strategy Manager at the Bâtirente financial services firm, shares our funds’ performance along with his insights on the economy and financial markets. This edition reviews the situation in the second quarter of 2026.
The economy in Q2 2026
During Q2 2026, economic conditions were significantly impacted by the Iran conflict. In Q1, rising inflation and weak economic growth—both characteristic of stagflation—were key concerns. However, hopes for a resolution to the conflict later reduced the risk of stagflation.
Inflation
As of May 31, 2026, Canada’s inflation rate stood at 3.2%. This rate was above the 2% target after peaking at 8.1% in the summer of 2022. In the United States, the inflation rate was 4.2% as of the same date. Inflation is expected to decline significantly if a resolution to the Iran conflict materializes.
Policy rates
Since the end of 2024, the Bank of Canada lowered its policy rate by 0.25% four times, bringing it down from 3.25% to 2.25%. Market participants expect a stable outlook for 2026.
In the United States, the Federal Reserve (Fed) reduced its policy rate by 0.25% on three occasions, decreasing it from 4.50% to 3.75%. As in Canada, the market expects the policy rate to remain at its current level throughout 2026.
Is a recession looming?
Canada’s economic growth is slowing, with gross domestic product (GDP) increasing by 1.1% year over year. It should be noted that Canada recorded two consecutive negative quarters (Q4 2025 and Q1 2026), meeting the definition of a technical recession. However, positive developments in Iran could support economic growth.
U.S. economic growth has remained relatively stable, with GDP up 2.1% year over year.
Markets in Q2 2026
With hopes of a resolution to the conflict, stock and bond markets increased significantly in Q2, while oil prices fell sharply (by nearly 40%) over the same period. Against this backdrop, the Bâtirente Funds delivered very strong absolute returns in the second quarter.
Equities
Hopes for a resolution to the Iran war sparked a strong rally in the markets. Equities posted impressive gains in Q2.
The MSCI All Country World Index (ACWI) recorded a return of 16.8% in Canadian dollars, driven primarily by a 74.4% increase in the value of semiconductor stocks. Developed market equities (MSCI EAFE), including those in Europe and Asia, generated a return of 13.3%, while U.S. equities returned 17.5%. Emerging markets posted a return of 26.6%, all in Canadian dollars. Meanwhile, Canada’s main equity index (S&P/TSX) delivered a return of 7.0%.
Bonds
Bond yields declined, driven largely by optimism that inflation could ease if the conflict in Iran is resolved. As a result, the FTSE Canada Universe Bond Index recorded a very strong return of 2.1%.
Q2 2026 Bâtirente Fund performance
Bâtirente Diversified Funds: between 4.7% and 11.3% (from least risky to most risky)
Treasury Multi Fund: 1.2%
Bond Multi Fund: 2.2%
Global Equity Multi Fund: 15.2%
Canadian Equity Multi Fund: 8.7%
Global Small Cap Equity Multi Fund: 10.2%
2026 market outlook
The US is poised to play a pivotal role in the markets during the last two quarters of 2026. The Trump administration could be the source of increased volatility.
Key risks to monitor include:
- A setback in the resolution of the conflict in Iran could lead to a market downturn and a significant increase in oil prices.
- After four years of strong performance, stock markets are trading at fairly high valuations. Semiconductor stocks, fueled by AI hype, delivered particularly strong returns (629% over 4 years).
- The US midterm elections are approaching; historically, this period is accompanied by lower stock market returns.
Given the current market environment, it’s essential to adopt a portfolio diversification strategy, such as that offered by Bâtirente Funds.
Sources: Bloomberg and Desjardins Financial Security
*Jean-François Dumais has worked as an Investment Strategy Manager at Bâtirente since 2019. Along with a Master of Business Administration (MBA) degree (Finance specialization), he has over 20 years’ experience in financial markets.