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As we enter the latter half of the year, the Canadian economic outlook remains clouded as it slipped into a technical recession. Persistent domestic and U.S. headwinds continue to weigh on markets, while escalating geopolitical events, a significant increase in AI-related issuance and the potential for private credit risks to spill over have added a new layer of complexity to the forecast. Central banks are remaining data dependent, given the elevated level of uncertainty and will likely lean towards a more balanced policy stance in order to maintain flexibility.  

The first half of 2026 proved to be challenging as energy prices spiked following the war in Iran and subsequent de facto closure of the Strait of Hormuz. This had a particular impact on Asian markets, which are the most reliant on oil and gas supplies that pass through the Strait.

As we head into the second half of the year, the U.S. economy is navigating a complex landscape where “resilient growth” clashes with a sudden resurgence of inflation, driven in large part by the war in Iran. The impact of tariffs that were first introduced in April of last year has remained relatively muted. However, inflation has climbed to 4.2 % in May, up 0.4% from the prior month.¹ This will lower the probability of a rate cut in the second half of the year. However, we expect individual tax refunds (including tax relief on overtime and tips), tax reform permitting the immediate expensing of capital spending and other regulatory reforms will work to offset some of the negative impacts of the war in Iran. 

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. 

The investment landscape for the second half of 2026 is defined by a paradox: a world navigating the severe geopolitical shocks of the war in Iran while simultaneously witnessing an unprecedented acceleration in AI infrastructure and the commercialization of space.

The de facto closure of the Strait of Hormuz earlier this year has caused a spike in energy prices around the world, as many countries are already grappling with an affordability crisis. As we enter the second half of the year, these are some of the key themes we continue to monitor. 

Join Paul Holba, President and CIO, Empire Life Investments Inc., as he analyzes shifting global markets in the second half of 2026, offering insights on inflation shocks, trade tensions, and active portfolio management.

2025 was a year of transition characterized by both global uncertainty and resilience. Ongoing geopolitical conflicts and trade tensions drove market volatility throughout the year, and we expect these uncertainties to carry over into the new year. However, there are a number of emerging themes that leave us feeling encouraged.

As we turn the page to 2026, our focus remains on navigating challenges and uncovering opportunities that drive long-term growth.

Here are some of the global themes we believe will impact markets in the new year.

Join Paul Holba, President and CIO, Empire Life Investments Inc., as he navigates the 2026 market outlook where geopolitical volatility and persistent inflation persist, while AI drives growth, and key themes emerge across fixed Income, equities, and the rise of "Global Champions".

Paul Holba, President and CIO of Empire Life Investments Inc. discusses some of the key themes the investment team will monitor as we head into the second half of 2025.

Inflation, geopolitical instability, and energy transitions require a proactive approach to protect wealth.

Join Paul Holba, SVP and CIO, Empire Life Investments Inc., as he provides expert insights into the key trends that will shape the markets in 2025, including inflation trends, central bank policies, geopolitical risks, and the resurgence of nuclear energy.