Read Between the Lines May 2026

Transcript

May’s market headlines give investors just enough comfort to become uncomfortable again. It was a month of contradictions. Oil fell while geopolitical tensions lingered. Inflation concerns resurfaced just as equity markets posted their strongest gains of the year. Artificial intelligence continued to capture investor capital, while Canada's economy offered a textbook case of Doctor Jekyll and Mr. Hyde. Beneath the surface, May wasn't about certainty.

It was about competing narratives battling for control of the overall market. So which story should investors believe? Let's take a few minutes to read between the lines. After April's relief rally, investors entered May with cautious optimism, increasingly betting that geopolitical tensions would continue to moderate. That sentiment gained traction towards month end as a credible framework for an agreement between the United States and Iran began to take shape.

While the final deal had yet to be reached, the prospects for a negotiated resolution appeared stronger than they had in prior months. Now, here we are a couple weeks into June, and a deal to reopen the Strait of Hormuz has been reached, with a 60 day period for continued negotiations, which may provide greater detail as the Iran conflict de-escalates.

Our thoughts are not to get too comfortable. It is likely wise to anticipate more geopolitical jousting to surface. Case in point Trump has already threatening tariffs on France wine imports in exchange for the removal of the 3% digital sales tax. Oil prices have also made progress. WTI crude began the month around $105 a barrel and is now sitting closer to $80 a barrel.

Meanwhile, Brent Crude started the month around $110 and currently sits at $82. With the Iran US deal in sight, oil prices trending lower is positive for the broader economy. Now, although energy prices may be moving in the right direction to eventually ease inflation concerns, current inflation prints continue to move upward. The May print of headline inflation in the U.S. was 4.2%, while core was 2.9% sequentially higher, not lower.

In Canada, the print was 2.8% headline and closer to 2% core, better than the US numbers, but still elevated what concerns us about elevated energy prices is a couple of factors. Eventually, this will bleed into broader economic consumption. We're now at the point where energy prices have been high enough for long enough that price pressure will hit price tags in the broader sectors.

The consumer has been resilient to North America, but we know they're not bulletproof to rising prices. Second, inflation trending higher makes it more difficult for central banks to stay on their more desired course of lowering rates. Lower energy prices, lower price flow through to the consumer, and lower interest rates are all better for both the economy and for the equity markets.

The current geopolitical landscape is simply making these outcomes difficult to achieve. Now, speaking of equity markets, how did they fare in May? The S&P TSX was up 2.3% and now sits up 9.6% year to date, the S&P 500 was up 5.3% during the month, leaving it up 11.3% year to date, now surpassing the TSX. These market moves were in fact supported by the most recent earnings season.

US based earnings grew 30%, with no surprise here. The tech sector doing the heavy lifting. The TSX earnings grew a more modest 10%. Financial and energy sectors in Canada posted stronger earnings growth of 30% and 20%, respectively. Now, overall earnings growth resiliency is the overarching theme, though we would prefer to see other sectors contributing more meaningfully. Expectations for future earnings growth, with revisions moving higher, may also be setting the bar unattainably high.

Nonetheless, the earnings picture does remain healthy. Now moving over to interest rate markets. Volatility was the word for me. The US ten year yield started the month at 4.4% and trended to 4.7% by mid-month, before retreating down to 4.5%. Now in Canada, the ten year yield began the month at 3.5%, trending higher to 3.7%, and now sits closer to 3.4%.

We recently heard from the Bank of Canada at one of their policy meetings. And here's the scenario. Earlier, I referred to Canada's Jekyll and Hyde economy. The most recent Canadian quarterly GDP print was -0.1%, and this represents the second consecutive negative print. However, May job growth in Canada was very strong at 78,000 new jobs being created. These economic updates are contradictory.

The bank is staring down the barrel of this Jekyll and Hyde economy, but they also have President Trump to worry about. Why do I say worry? While the renegotiation of the Canada US Mexico trade agreement is just around the corner, with the July 1 being a key date, and they're not playing nice with the Bank of Canada's ability to forecast the economy to any meaningful degree.

Expect the Bank of Canada to keep rates at 2.25% for the remainder of this year. Simply put, there's too many variables pushing in both directions to warrant a change in rates. The next Federal Reserve meeting update takes place this week, and it will be the first time we hear from the newly appointed Fed chair, Kevin Warsh. Stay tuned for that update next month.

Now, given this landscape, how has Matco’s investment platform performed? Year to date Matco’s opportunity strategy is up 20.8%. Our global equity strategy is up 11.5%. Canadian equity income is up 11.1%. Matco’s balanced strategy is up 8.2%. While our diversified income strategy is up 2%. Within our strategies, portfolio recalibration continues, but the focus remains on technology at the right price,

defense and wealth, auto, commodity exposure and infrastructure. On the income side, we're focusing on medium term exposures, not relying solely on fixed income, but allowing dividend paying equities and mortgage solutions to share the income generation workload. Overall growth continues to outperform value. Equity continues to outperform income. That said, now is not the time to overly concentrate one's portfolio either by geography, sector, asset class or otherwise.

Quality diversification obsessively reviewing opportunities and risks is the necessary approach. Avoid prediction and focus on process. In many ways, today's environment feels like a constant balancing act. Competing forces, incomplete information and decisions that rarely have a clear right answer. This is a nice segue into my May book read A dollar a Year Men, written by Alan Levine. Now, special shout out to Mr. Lowden, who not only recommended the book, but hand-delivered it to me.

Dollar a Year Men tells a story of prominent executives, lawyers, engineers and business leaders who stepped away from the lucrative private sector careers to support the federal government during World War Two. This was back in the 1930s and early 1940s. The book centers on roughly a dozen individuals with a particular focus on C.D. Howe's leadership as Minister of Munitions and Supply.

These were highly capable, strong willed individuals, often with large egos, who argued, clashed, made mistakes, and at times were viewed with suspicion by politicians. While the title suggests significant sacrifice, the reality was a bit more nuanced. Some continued receiving compensation from their firms, and many benefited meaningfully from opportunities post war. That said, sacrifices were in fact made and despite execution challenges along the way.

The book effectively shows how the war galvanized a national effort here in Canada, bringing together industry leaders to collectively achieve something that was truly extraordinary. Now, to put that into perspective, Canada transformed from a largely agricultural economy into a major industrial power during the war, ultimately becoming the fourth largest producer among the Allied nations. Entire industries, including aircraft manufacturing, shipbuilding, radar production, and advanced munitions were created or dramatically expanded.

These capabilities didn't just support the war effort. They helped shape Canada's economic trajectory for decades that followed. Now, overall, I enjoyed the story and came away with a much deeper appreciation for the scale of the challenge that Canada faced and what it took to mobilize effectively during World War II. That said, I did struggle with the first half of the book.

A slight lack of consistent character development and shifting timelines made what was clearly a fascinating story, a little harder to follow than it needed to be. The final third of the book, however, did redeem itself, bringing the narrative together a little more effectively. All in, I gave it a 6.4 out of ten. Definitely a compelling and worthwhile story, but one that, in my view, could have been told with a little more clarity and focus, little less bouncing around overall.

Thanks again for the book recommendation, Mr. Lowden. I did enjoy it and will keep my copy on my shelf for years to come.

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