Overview

Global markets were more stable in Q2 2026 than in the first quarter, but the investment backdrop remained influenced by geopolitical tensions, higher oil prices and changing interest rate expectations. The quarter opened with a relief rally after a US-Iran ceasefire was announced in early April. That provided the backdrop for a strong Q1 earnings season, with S&P 500 earnings rising roughly 27% year-on-year as technology companies showed early evidence of monetizing AI investment through rising revenues and expanding margins. Countries exposed to the AI supercycle, including the US and parts of Asia, could do particularly well. We expect healthy growth rates in the US, Japan and some emerging markets, but growth could sub-trend elsewhere.

In Canada, growth is expected to remain tepid in the near term before gradually improving, underpinned by slowing population growth, uncertainty around CUSMA renegotiations and marginally easing fiscal policy. The private sector remains cautious, although the effects of fiscal support and what we expect to be a manageable outcome to trade negotiations should help conditions stabilise. Inflation is likely to remain contained overall, even though the increase in energy prices may keep headline inflation somewhat elevated in the short term.

The ELCIC pension plan returned 7.4% for the second quarter of 2026, trailing its benchmark by -0.1%. Since inception of the OCIO arrangement in March 2025, the total plan has returned 14.3% annualized.

Canadian equities

The Canadian equity market remains supported by commodity exposure and improved earnings momentum. Forward earnings growth has accelerated and is now broadly in line with US peers, helped by the strength in energy and materials. Valuations remain attractive, but uncertainty around trade negotiations and the broader macro outlook continues to limit conviction.

Canadian equities in the Growth portfolio gained 5.9% in Q2, lagging benchmark returns of 7.0%. Strong gains from financials and consumer staples were partially offset by negative returns from energy and materials.

Global equities

Global equities enjoyed another strong quarter in Q2. Global equity markets shifted decisively from the prior quarter’s oil shock and geopolitical-driven caution to a broad risk-on rebound. The rally was underpinned by falling energy prices that eased inflation anxiety, along with continued confidence that the AI build-out would translate into durable earnings strength. AI remains an important theme, and productivity growth continues to support the broader market backdrop, but dispersion across regions and sectors is likely to remain high as investors balance earnings momentum against inflation and interest-rate uncertainty.

Equity holdings in the Growth portfolio had strong absolute returns for the quarter but generally trailed benchmark returns. Global equities returned 15.2% vs benchmark returns of 15.7%. Global small cap equities and the benchmark both returned 17.0%. And emerging markets equities returned 23.4% vs benchmark returns of 26.1%.

Fixed income

In Q2, Canadian bond yields fell overall but exhibited intra-period volatility. Yields rose early in the quarter due to the potential inflationary pressures from rising oil prices. However, yields subsequently declined along with falling inflation expectations as there was limited evidence of a broad-based pass-through of higher energy prices. The Bank of Canada held rates steady during the quarter given the heightened market volatility surrounding the geopolitical climate.

Canadian universe bond yields fell by 11 basis points for the quarter and both Canadian and global credit spreads tightened in Q2. This resulted in positive gains for all five holdings in the Fixed Income Fund, ranging from 0.6% for the money market fund to 5.5% for the global fixed income fund. All fixed income funds outperformed their benchmarks for the quarter.

Each year on August 12, International Youth Day recognizes the valuable contributions of young people and highlights the important role they play in building stronger, more compassionate communities. This day encourages us to celebrate the creativity, resilience, and leadership of youth while recognizing the opportunities and challenges they face. 

Contributions to Society

Young people are making a difference in countless ways: volunteering, advocating for social justice, caring for their community, pursuing education, and sharing innovative ideas that inspire positive change. Their energy, passion, and commitment help shape a more helpful and inclusive future for everyone. 

International Youth Day is also a reminder of the importance of listening to young voices, supporting growth, and creating opportunities for them to develop their gifts and talents. By encouraging and investing in today’s youth, we help equip the next generation of leaders, caregivers, educators, and changemakers. 

Contributions to the ELCIC

In the ELCIC, we recognize that young people are our future. One opportunity for youth to connect with each other and the wider church is the popular CLAY (Canadian Lutheran-Anglican Youth) Gatherings, held biennially; the next one is scheduled for August 19 – 22, 2027, in Nanaimo. Young people also have the opportunity to lead and participate in gatherings and activities at the regional and synodical level. Youth assistance with worship, music-making, IT, confirmation, and other aspects of congregational life help keep our congregations active. Finally, as staff and as participants, youth and young adults enable Lutheran camps and campus ministries to thrive. It is difficult to overestimate the contribution that young people make to our denomination.

This August 12th, take a moment to celebrate the young people in your family, workplace, and community. Their contributions today are helping build a brighter tomorrow.