Summer storms

Market volatility driven by rate uncertainty, trade tensions, geopolitical conflicts

July continued the themes of a summer of uncertainties, as global events continue to shape the macroeconomic backdrop, creating new opportunities as well as risks for investors.

As the month came to a close, investors remained cautious as U.S.-Iran tensions escalated, and once again shipping through the Strait of Hormuz came to an effective standstill. The ceasefire between the U.S. and Iran, reached through a memorandum of understanding in June, broke down in July. By late July the ceasefire remained fragile, and shipping through the Strait of Hormuz stayed well below normal, with fewer than 10 vessels passing daily compared with about 100 before the war.

Oil prices reflected this uncertainty, rising over the month. Brent swung between $72 and $102 before settling at $88, with markets pricing in each de-escalation only to reprice from scratch on every setback. This also impacted gasoline prices, raising concerns about another stretch of inflationary pressures. Until a durable resolution is reached, we believe markets appear to be pricing in that elevated energy prices are likely to persist, keeping upward pressure on inflation and costs for consumers and businesses and adding uncertainty to the economic outlook. That said, gold, which is often viewed as a safe-haven asset, rose 1.3% to reach $4,061/oz. and remains -6% lower for the year.

Trade tensions also continued to rumble through markets, with one tariff regime replaced by another. Statistics Canada reported in July that Canada's merchandise trade surplus widened to $4.2 billion in May, the largest in four years, as exports climbed to a record $77.1 billion while imports edged lower. Exports to the U.S. rose for a fourth straight month, pushing Canada’s surplus with its top trading partner higher.

Trade tensions with the U.S. escalated further in July, as President Donald Trump signed an order imposing new 50% tariffs on a range of Canadian goods, taking effect in mid-August, citing Canada’s unfair treatment of U.S. dairy, alcohol, and auto exports. Days later, Washington launched a separate round of tariffs on dozens of countries, citing concerns about forced labour in global supply chains. Canada, alongside Mexico and the U.K., was hit with a 10% tariff, while several other countries/regions face a 12.5% tariff; goods compliant with the Canada-United States-Mexico Agreement remain exempt from this round.

The layering of new U.S. tariffs adds fresh uncertainty, and if these tariffs persist, they could weigh on exports and economic growth in the months ahead, adding pressure to an already fragile outlook for Canada’s economy.

The central bank factor

In keeping with another theme this month, central banks, including the Bank of Canada (BoC), Bank of England and European Central Bank (ECB), held policy interest rates steady at their July meetings. The U.S. Fed also held rates steady, at a target range of 3.50%-3.75% at its July meeting, which was widely expected by economists.

The Fed noted its commitment to price stability, saying it is willing to shift monetary policy depending on the prevailing economic conditions. Markets had priced in a 40% chance of a hike going into the meeting. Chair Warsh offered no forward guidance beyond confirming there would be none, framing the decision not as a pause but “a rigorous review of the economic situation,” and repeating his defining line: “We will deliver price stability.”

With the FOMC split and inflation above target, markets are now pricing hikes before year-end. The U.S. and Europe both reported their respective economies expanded in the second quarter of 2026.

One notable wrench in markets was a mechanical selloff after Situational Awareness LP was margin called. As a reminder, this was an AI fund run at roughly four times leverage by 24-year-old former OpenAI researcher Leopold Aschenbrenner. As concentrated AI bets unwound, the fund was forced into a $16 billion liquidation that Citadel picked up at a discount.

Korea saw a similar dynamic: After the Kospi, South Korea's benchmark equity index, heavily weighted to Samsung Electronics and SK Hynix, more than doubled in the first half of 2026, leveraged positions hit a record 29.2 trillion won in early July. When sentiment on memory names shifted, over 1.2 million accounts faced margin calls and roughly 360,000 were forcibly liquidated. MSCI Korea fell -23.7% on the month (though it remains up +79% for the year at the time of writing). However, the rebound that followed was substantial, with Samsung and SK Hynix each gaining over 20%.

Underneath the leverage-driven volatility, though, corporate fundamentals remained steady. With two thirds of S&P 500 companies having reported by month end, 87% had beaten expectations by an average of 14%, and earnings grew 22% year-over-year. Microsoft and Amazon both rose +16% on cloud strength. But dispersion told its own story: Alphabet fell -7% despite 82% cloud revenue growth, and Apple dropped -7% on chip-driven cost pressure.

Markets remain willing to pay for AI capex, just far more selectively.

Greg Taylor, CFA, is the Chief Investment Officer and a Portfolio Manager at PenderFund Capital Management. He manages the Pender Alternative Multi-Strategy Growth Fund. 

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