Podcast
Making Sense of AI, Rates and the Trade War
Will Simpson and Greg Wise
September 19, 2026
AI anxiety, interest rate hikes and Canada’s trade war response.
A lot less red than last week, but this one was more mixed than the headline numbers suggest. The TSX edged up 0.1%, the S&P 500 rose 0.6% and the Nasdaq led the way with a 1.5% gain, leaving global stocks up around 0.3%. Beneath the surface, the gains were concentrated in a relatively small group of companies. Larger growth companies led the way, with the Russell 1000 Growth index up 1.8%, while value stocks and smaller companies both finished lower. The Dow fell 0.9%, with financial stocks weighing on returns, and overseas markets struggled, with Europe down 1.5% and Japan down 1.2%.
Last week we said the rate story was getting interesting, and this week it delivered. In a unanimous vote, the Fed raised rates by 0.25 percentage points to a range of 3.75% to 4.00%. It was the first hike since 2023, with its latest projections pointing to another possible increase before year end. The Bank of Japan followed on Friday with a hike to 1.25%, its highest policy rate since 1995. The yen weakened anyway, which didn’t help Japanese returns when measured in Canadian dollars. The Bank of England held steady. Meanwhile, the yield on the U.S. 10 year Treasury bond touched 5.04% on Tuesday, its highest level since 2007, before easing as oil prices fell on reports that Saudi Arabia was restoring pipeline capacity. The rate decisions were largely expected, and that is part of the story. Markets had already adjusted to the prospect of higher rates, so the reaction was more of a shrug than a shock.
Closer to home, Canada’s annual inflation rate came in as expected at 3% in August, with measures of underlying inflation still averaging around 2%. That did little to change expectations, with markets still leaning toward a Bank of Canada rate hike in October. So the broader shift toward higher rates we flagged last week is becoming a reality. The encouraging part is how stocks handled it. A 5% U.S. Treasury yield, a Fed hike and oil trading around US$100 would have been a recipe for a much uglier week not long ago. The less encouraging part is how few companies shared in the gains. With smaller companies, financial stocks and businesses sensitive to higher rates all lagging, the market is relying on a small group of names to do the heavy lifting. Something to watch as we head into quarter end.
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