Intelligent Investment
Hope On The Horizon
Canada Monthly Market Commentary - May 2026
May 29, 2026 2 Minute Read
Global financial markets are buoyant in the hope of an end to the Middle East conflict. Progress is ostensibly being made towards an agreement between the U.S. and Iran, despite some continued military strikes and conflicting media statements. A recent report suggested that commercial traffic in the Strait of Hormuz could return to prewar levels within one month of an agreement. That prospect has maintained optimism in the market, with stock indices holding near their record highs and bond yields coming off their recent peaks.
Movements in the global bond markets have a major influence on Canadian yields. Both the Canada 5-year and 10-year bond yields surged by as much as 14 bps this month to nearly two-year highs following growing geopolitical tensions and higher oil prices. But recently there has been growing optimism for a peace deal alongside relatively resilient inflation in Canada that have since seen those yields plummet by over 20 bps to 3.13% and 3.45%, respectively. This volatility in bond markets is not the most conducive for building momentum in real estate investment, despite cap rates being largely stabilized. If optimism prevails and bond yields then stabilize, that will further strengthen investor confidence and become a meaningful tailwind for increased activity in Canada.
Another draw for investors is that Canadian real estate returns are also signaling a potential inflection point. In MSCI/REALPAC’s Canada Property Indices, quarterly total returns have been increasing and capital growth has been getting progressively less negative. In fact, the Canada Property Fund Index recorded its first positive, albeit marginal, quarterly capital growth in many years in Q1 2026. While retail remains the best performing asset class in Canada, notable improvements have been seen in office returns.
A lasting peace agreement is still not guaranteed and risks remain, but between the potential for bond yields stabilizing and signs of a recovery in real estate returns, the conditions are firming up for a stronger investment market in the second half.
Economic Highlights:
- Employment fell by 17,700 jobs in April 2026 and the unemployment rate rose to 6.9%.
- Headline inflation rose to 2.8% in April 2026 driven by higher gas prices, while core measures CPI-Median and CPI-Trim eased to 2.1% and 2.0%, respectively.
- Retail sales grew by 0.9% in March 2026 and advanced estimates suggest sales increased a further 0.6% in April 2026.
Viewpoints:
- Iran state TV says draft deal with US would reopen Hormuz shipping, end naval blockade
- Oil prices fall more than 5% after Rubio says U.S. will give Iran talks ‘every chance to succeed’
- Wall Street hangs near its records as oil prices sink
- Inflation data gives Bank of Canada more flexibility to hold interest rates, economists say
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