Podcast
A Tale of Two Markets
Will Simpson and Greg Wise
July 18, 2026
Market Turbulence or Just a Rotation?
The tables turned this week. After a first half in which nearly everything worked, markets spent four sessions questioning one of the key assumptions supporting the rally. The S&P 500 fell 1.4%, the Nasdaq dropped 3.5%, and the Dow gave back 1.0%. The TSX was the standout, gaining 0.5%, a rare week of Canadian outperformance helped by energy and a loonie that strengthened 0.8% against the US dollar.
The catalyst was not bad news. It was good news that cost too much. Taiwan Semiconductor beat expectations for the second quarter but raised its 2026 capital spending guidance, and the stock fell more than 2%. Chips sold off for two straight days. Alphabet dropped over 4% on reports that Gemini 3.5 Pro is behind schedule, and IBM fell 25% on Tuesday after warning on second quarter profits.
Last week, investors rotated into chips and out of hyper-scalers. This week, they began questioning whether that spending will generate enough return to justify the cost. This is an important distinction, as markets stopped treating AI spending as automatically positive.
On the macro side, June CPI came in weaker than expected on Tuesday, taking some air out of the Fed hike argument. The Bank of Canada held its policy rate at 2.25% on Wednesday, as expected, but struck a hawkish tone, noting improving growth and inflation likely to run above prior forecasts through 2026 before easing. The loonie hit its strongest level since June. Trump reinstated a blockade on Iranian shipping through the Strait of Hormuz on Monday, sending oil higher and stocks lower to start the week.
What changed this week was not the broader story, but the market’s willingness to test it. For months, AI spending was the answer to every question. This week, it became the question. A market that scrutinizes the cost side of AI is behaving more rationally than one that celebrates every announcement.
For now, this looks more like a rotation than a broad market breakdown. We are not seeing extreme risk, but we are also not seeing a washed-out buying opportunity. The Canadian outperformance is also a reminder of why we hold assets that do not all depend on the same story.
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