For some weeks regular readers will know that I have been concerned that financial markets, especially the major US indices have seemingly ignored the potential long-term impacts of the disruption of oil supply and related vast number of byproducts on inflation and global economies. This up move has of course been led by only two sectors: anything related to technology and AI and very specifically chip and memory manufacturers and of course energy companies which are making a short-term small fortune out of the huge increase in the price of oil.

I also have commented on what I like to call the rocket ship rise of many of these technology companies in a matter of weeks. For example the semiconductor index is up 71% since mid-April and Micron Technology gained over 163% over the same time frame, these straight up moves are unsustainable, but the challenge always is: if you're on board, when to get off ? And if you're not on board at what price do you get in? As only in hindsight does one know where the peak price is and how far shares will fall when reality does not meet expectations.

Other than these two groups; energy and technology, the rest of the major US sectors have lost value since the war began, many in the double-digit percentage range and this is true for much of the global stock markets.  And while so far US companies are reporting better-than-expected earnings buoyed by government stimulus and lower taxes, behind-the-scenes consumers who are NOT benefiting from the increased value of investment portfolios, but instead rely on wages to live on, seem to be faltering. The US consumer represents some 70% of the US gross domestic product, and similar but slightly lower percentage in Canada, so ultimately if the consumer fails so does the economy and by default stock markets. One can only assume more challenges ahead because it appears that price of oil and inflation are both heading higher over the next few months before any potential moderation.  

On Friday stocks took a battering driven by US inflation reported higher than even the lofty increases expected, interest rates jumping and last but certainly not least, the 48 hour visit by President Trump and a cohort of major business leaders to China did not seem to provide any meaningful trade deals. Instead the talks between the two leaders only seem to ramp-up worries over China taking control of Taiwan, accompanied with stern warnings by President XI for the US not to interfere.

So while the S&P 500 ended the week barely positive, it was a noticeable losing one for the other major US indices and virtually all European and Asian markets. As I write this, midday Monday, the S&P 500 and the technology heavy NASDAQ are lower - continuing Friday's down move.

So the big question: Is this just a short-term pullback after some impressive and rapid gains over the last month or so? Or the beginning of a more meaningful correction as we seem no closer to a Middle East resolution?.

Consider some realities:

• Inflation: higher across-the-board, for example in the US Core PPI (Producer Price Index) up 1% on the month before and the highest since Mar-22. Annual core up 5.2% month over month above the 4.3% consensus, highest since Dec-22. Annualized headline Inflation up 6.0%, hotter than 5.0% consensus, again highest since Dec-22. Last but not least wholesale prices up 6%. Without a doubt all major global economies including Canada will face similar inflation challenges in the months ahead .
• Bond yields: US interest rates jumped to the highest in over a year and corresponding increases in bond yields and borrowing costs are being felt across all major economies.
• Central banks: In the US rate cuts are now being viewed as nil in 2026 (versus 2 to 4 cuts expected back in January) and some analysts are now predicting a rate hike instead, not good for borrowers, stock markets or the economy.
• Consumer stocks :Are they warning of a spending slowdown? Consider the share price performance of some of these major players so far this year:

1. Discretionary consumer purchases: Home Depot -13%, Restoration Hardware -28 %, GAP Stores -16%, Nike -34%,

1. Travel: Norwegian Cruise lines -28%, Carnival Cruise Lines -17%, United Airlines -14%, American Airlines -17%, hotels on average -10%

1. Fast food : Shake Shake -22%, McDonald's -10%

• Consumer insolvencies: The highest in Canada since 2009, in the first three months of 2026 there was an 8 1/2% increase from the same period last year. I can only assume consumer bankruptcy numbers in America will show similar trends, as middle and lower income earners fight higher inflation, higher borrowing costs and based on recent reports potentially more layoffs .

My prediction in January that investors would face a volatile and challenging year has not changed and while a few months has produced stock market performance better than I would've expected, I still believe as we go into summer the above-noted economic impacts along with uncertainly south of the border over the midterm elections will lead to price volatility. While outside the North American continent the impact of energy shortages is likely to have a bigger impact on economies and consequently financial markets. We’ve already seen it in airline travel schedule cutbacks and countries such as India asking consumers to reduce the use of petrol.

So as we head into summer my investment strategy remains the same as early January: ensure portfolios are well diversified, not only among sectors but amongst countries and invested in quality companies; ensure one is not overweighted in highly extended sectors such as energy and technology, instead make sure portfolios have exposure to the other major sectors which did not perform as well last year but represent significant underlying fundamental value. Also have an appropriate cash balance because I'm sure sometime during the year, as there is in most years, there will be volatility and a significant sell off enabling purchases of favorite sectors at much lower prices.

Dennis