October 2026 market update
Canada Life - Nov 05, 2026
Global equity markets declined over the month of October. High energy prices continued to stoke fears about inflation and expectations that central banks will need to keep raising interest rates this year. The AI trade lost some momentum during the month with companies highly involved in AI technology raising their capital spending while expressing caution that returns on investment may not be robust in the short term. Several companies’ sales outlooks were downgraded and/or missed estimates.
Economic data released in October demonstrated the resiliency of the global economy despite several risks that weigh on the outlook. The U.S. economy grew by 3.4%, annualized, in the third quarter of 2026, according to a preliminary estimate. Growth was driven by business spending, particularly for AI. China’s gross domestic product expanded by 4.5% year-over-year in the third quarter, a faster pace than the second quarter, and within range of Beijing’s 2026 target. Inflationary pressures accelerated as oil prices remained high with the conflict in the Middle East persisting. The U.S. Federal Reserve Board (Fed) and European Central Bank held their policy interest rates steady in October, while the Bank of Canada (BoC) raised its benchmark overnight interest rate to 2.50%.
In Canada, the S&P/TSX Composite Index advanced, led by the energy sector. Canada and the U.S. resumed trade talks, but a deal was not reached. There are hopes the two sides are getting closer to an agreement. U.S. equities finished lower. The price of gold declined. The price of oil rose about 15%. Yields on 10-year government bonds in Canada and the U.S. declined over the month.
The Bank of Canada lifts interest rates to keep inflation from spreading
At its October meeting, the BoC raised its key interest rate by 25 basis points to 2.50%, which was its first interest rate increase since July 2023. The decision reflects growing concern about inflation. Specifically, Canada’s central bank is looking to contain energy-driven inflation, seeking to stop its spread to other areas of the economy. Persistently high oil prices, tied to the ongoing conflict in the Middle East, have kept Canada’s inflation rate near 3% since April 2026. The BoC expects inflation to reach about 3.5% by year-end and average 3% in 2027, before returning to its 2% target only by mid-2028. The BoC expects Canada’s economy to expand by 1.0% in 2026, as new U.S. tariffs slow activity in the fourth quarter, before picking up to 2.0% in both 2027 and 2028. The BoC said its outlook remains highly uncertain, particularly around Canada-U.S. trade relations and ongoing geopolitical tensions.
Recent reports suggest trade talks between Canada and the U.S. have picked up pace, although no deal has been reached. An agreement could boost business confidence and support exports, while a setback could weigh on economic growth. The interest rate increase could mean higher borrowing costs on mortgages and loans, which could put pressure on already strained households and businesses. The BoC signalled it may raise interest rates again, but it plans to proceed carefully. Canada’s economy may be bumpy in the months ahead, yet a sectoral trade deal may help boost business activity for those trade-related sectors.
High U.S. mortgage rates pulling down housing demand
Higher mortgage rates and elevated home prices continued to cool the U.S. housing market, according to data released in October. Pending home sales, which track contracts signed on existing homes, fell by 7.3% in September and were 11.3% lower than a year earlier, with declines in every region. Demand has significantly waned with consumer confidence low amid economic and price uncertainty. Homebuilding also slowed. Housing starts dropped by 5.2% in September, led by weaker single-family construction, while building permits, a sign of future activity, were nearly unchanged. Data from the Mortgage Bankers Association of America showed the average 30-year fixed mortgage rate stood at 7.50% early in the month before easing for two straight weeks, reaching 7.37% over the week ended October 23. Mortgage applications rose 3.4% that week, but purchase applications remained 18% below last year’s pace as many buyers put their plans on hold. Housing is an important part of the U.S. economy, supporting construction jobs and spending on items such as furniture and appliances. A prolonged slowdown could weigh on economic growth in the months ahead.
The Fed held its federal funds rate steady at a target range of 3.75%-4.00%, but more rate hikes are possible this year and into next given stronger economic growth in the third quarter of 2026 and inflation that remains sticky and well above target. In response, purchasers could be facing even higher mortgage rates, which could put even more pressure on demand.
Stronger business activity in the U.K. despite higher prices
The U.K. economy appears to be gaining momentum, according to preliminary business activity data released in October. The S&P Global UK Composite Purchasing Managers’ Index (PMI), which tracks activity in both the services and manufacturing sectors, rose to 53.1 in October from 52.0 in September. A reading above 50 signals growth, and October’s figure marked the fastest pace of expansion in eight months. New orders grew at their quickest pace in about two years, and businesses began adding staff for the first time since September 2024. However, the report also showed rising costs for businesses, largely due to higher energy prices. Inflation remains a concern. The U.K.’s annual inflation rate rose to 3.5% in September from 3.1% in August, higher than many expected, with rising fuel prices the biggest contributor. Core inflation, which excludes volatile items like energy and food prices, also moved higher to 2.8%. Together, stronger business activity and rising inflation have increased expectations that the Bank of England will raise interest rates at its November meeting. Higher rates could help bring inflation under control but may also increase borrowing costs for households and businesses, potentially slowing the U.K.’s economic recovery in the months ahead.
International Monetary Fund expects higher global growth
In its October 2026 World Economic Outlook, the International Monetary Fund (IMF) described a global economy that remains resilient, but under growing strain. The IMF lifted its projection for global economic growth while acknowledging several risks that could weigh on economic activity and financial market strength. The IMF expects global economic growth of 3.1% in 2026, which is up slightly from its previous projection, but down from actual growth in 2025. The IMF sees global economic growth improving to 3.4% in 2027. Global inflation is projected to rise to 4.7% in 2026, driven largely by higher energy prices in response to the conflict in the Middle East. The IMF also pointed to renewed trade tensions and uncertainty around AI investment as key risks to its global outlook.
For Canada, the IMF lowered its 2026 growth forecast to 1.1%, down from its April projection, citing the energy shock and fresh trade uncertainty with the U.S. Growth is expected to improve to 1.7% in 2027. Canada’s inflation is projected to rise to 2.8% in 2026 before easing to 2.4% in 2027, which is much different than the BoC’s projection. As a trading nation, Canada is closely tied to the health of the global economy. A slowdown abroad, particularly in the U.S., could reduce demand for Canadian goods. However, higher prices for Canada’s energy and commodity exports are providing some support.
| Equity Markets | Level | Month to date | Month to date (C$) | Year to date | Year to date (C$) | 1 year | 1 year (C$) |
|---|---|---|---|---|---|---|---|
| S&P/TSX Composite Index C$ | 35,620.03 | 1.09% | 1.09% | 12.33% | 12.33% | 18.03% | 18.03% |
| MSCI USA Index US$ | 7,220.32 | -1.03% | -2.82% | 10.53% | 12.45% | 10.71% | 10.52% |
| MSCI EAFE Index US$ | 3,100.62 | -0.80% | -2.60% | 7.19% | 9.05% | 10.61% | 10.42% |
| MSCI Emerging Markets Index US$ | 1566.63 | -8.11% | -9.77% | 11.55% | 13.49% | 10.98% | 10.79% |
| MSCI Europe Index US$ | 2,752.08 | 0.29% | -1.52% | 4.13% | 5.94% | 8.77% | 8.59% |
| MSCI AC Asia Pacific Index US$ | 259.63 | -6.09% | -7.79% | 14.04% | 16.01% | 13.46% | 13.27% |
MSCI USA Index US$
| Fixed Income Markets | Level | Month to date | Month to date (C$) | Year to date | Year to date (C$) | 1 year | 1 year (C$) |
|---|---|---|---|---|---|---|---|
| FTSE Canada Universe Bond Index C$ | 1,208.06 | 1.48% | 1.48% | 0.69% | 0.69% | -0.26% | -0.26% |
| FTSE World Investment Grade Bond Index US$ | 226.67 | 1.42% | -0.42% | -1.75% | -0.05% | -1.30% | -1.47% |
Fixed Income Markets
| Currencies | Level | Month to date | Month to date (C$) | Year to date | Year to date (C$) | 1 year | 1 year (C$) |
|---|---|---|---|---|---|---|---|
| CAD/USD | 0.7156 | 1.74% | - | -1.91% | - | -0.03% | - |
Currencies
| Commodities | Level | Month to date | Month to date (C$) | Year to date | Year to date (C$) | 1 year | 1 year (C$) |
|---|---|---|---|---|---|---|---|
| West Texas Intermediate (US$/bbl) | 104.12 | 15.15% | - | 81.33% | - | 71.90% | - |
| Gold (US$/oz) | 3,874.62 | -6.80% | - | -10.30% | - | -3.73% | - |
| Silver (US$/oz) | 49.10 | -18.74% | - | -31.49% | - | 0.35% | - |
Commodities
Gold (US$/oz)
Silver (US$/oz)
-
-
Join thousands of advisors who are already receiving our updates. Get the information you need to help clients make sense of market moves, keep their emotions in check and stay invested to meet their goals.
This commentary represents Canada Life Investment Management Ltd.'s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor. You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of Canada Life Investment Management Ltd.
FTSE DisclaimerOpens a new website in a new windowOpens a new website in a new window - Opens in a new window | S&P DisclaimerOpens a new website in a new windowOpens a new website in a new window - Opens in a new window | MSCI Disclaimer Opens a new website in a new windowOpens a new website in a new window - Opens in a new window