The rate shock flagged at the end of August materialized in September. On September 16, the Federal Reserve raised the federal funds target range by 25 basis points to 3.75%–4.00%, its first increase since 2023 and a unanimous vote. The 10-year Treasury yield climbed from 4.75% to 5.28%, a nearly 20-year high. Canadian equities were particularly exposed through gold miners and rate-sensitive sectors: the S&P/TSX Total Return fell 2.6% and gave back most of August's 3.1% gain, while the S&P 500 lost 0.3%.
Gold fell about 7% from its late-August $4,500 an ounce level, and Materials dropped 7.4%. Telecom fell 9.8%, the worst sector on the TSX, as higher discount rates pressured dividend stocks and TELUS shares continued to absorb July's 55% dividend cut. The Canadian dollar fell 2.6% to US$0.703. U.S. technology rose 4.5% and kept the S&P 500 near flat. No Canadian sector of comparable weight provided the same support.
Benchmark | Aug-2026 | Sep-2026 |
|---|---|---|
S&P 500 Total Return | 2.7% | -0.3% |
S&P/TSX Total Return | 3.1% | -2.6% |
Source: FactSet
Global Market Overview
United States
Strong August hiring and persistent inflation supported a September rate increase. Payrolls initially rose 162,000 and unemployment stayed at 4.1%, while CPI rose 0.4% monthly and 3.4% annually. The Fed raised rates 25 basis points, with projections implying another increase this year. However, September payrolls rose just 29,000, unemployment increased to 4.2%, and August hiring was revised down to 133,000. Information Technology (+4.5%) and Telecom (+4.3%) carried the index, while Financials (-7.2%), Materials (-6.7%) and Utilities (-5.9%) fell sharply.
Europe
The European Central Bank raised its three policy rates by 25 basis points on September 10, lifting the deposit rate to 2.50%. Euro-area inflation rose to 3.2% in August from 2.9% in July, while energy inflation reached 14.3% as the Middle East conflict kept fuel costs elevated. New staff projections put 2026 headline inflation at 3.0% and economic growth at 0.9%. The MSCI All Country World ex-U.S. index fell 2.3%.
Canadian Market Overview
The Bank of Canada left the overnight rate at 2.25% on September 2, while maintaining that further increases could be required if inflation pressures persist. August CPI rose 3.0% year over year, matching July, while inflation excluding gasoline accelerated to 2.4% from 2.2%.
Employment broke a four-month run of gains. Canada lost 42,000 jobs in August and the unemployment rate remained at 6.4%. Average hourly wage growth slowed to 2.0% year over year, its weakest pace since 2017 outside the pandemic period. Through September 24, the Canada two-year yield rose 38 basis points to 3.39% and the 10-year rose 24 basis points to 3.97%. Financials fell only 1.1% and cushioned an index otherwise pulled down by telecom and materials.
Canadian Sector Performance
Info Tech: +3.5%. The only sector to finish higher. The gain was narrow, concentrated in hardware and AI-infrastructure names, while several large software companies declined.
Financials: -1.1%. The large banks held up better than resource and telecom names, helping limit the TSX decline to 2.6%.
Materials: -7.4%. Gold's drop of about 7% from above $4,500 an ounce pulled miners lower after August's strong advance.
Telecom: -9.8%. Higher government bond yields raised the discount rate applied to dividends, while TELUS continued to absorb its 55% dividend cut announced in July. The large carriers led the sector lower.
Important Dates
October 9: Canada Labour Force Survey (September)
October 14: U.S. CPI Inflation (September)
October 19: Canada CPI Inflation (September)
October 23: Canadian Retail Sales (August)
October 28: Bank of Canada policy decision and Federal Reserve FOMC decision
Final Thoughts
September settled the question August left open. Gold had benefited from stable real yields and a softer U.S. dollar, but a 53 basis point rise in the 10-year yield reversed much of that support. Attention now turns to October 28, when the Bank of Canada and Federal Reserve announce decisions on the same day. The Fed's projections still point to another increase this year, although weak September employment has added uncertainty.