Last week, both the TSX Composite and the S&P 500 reached record highs, driven by higher oil prices, robust corporate earnings, and softer-than-expected US inflation data. The energy sector led indices on both sides of the border as instability continued in the Middle East and a deal to open the Strait of Hormuz remained elusive. 

Shares of Air Canada rallied last week as the company announced a plan to sell a 25% stake in its Aeroplan business. The buyers include Blackstone and a group of Canadian pension funds that paid $2.5 billion for the 25% position. The $10 billion implied value for Air Canada’s Aeroplan stake is greater than the company’s current market capitalization.

The race to build AI manufacturing capacity is coming at a steep cost. Intel shares fell 4% after upsizing a common stock offering to US$20 billion at US$95 per share. The company is capitalizing on its massive stock rally to secure the liquidity needed to expand chip manufacturing, as AI demand continues to outstrip current production capabilities.

Meanwhile, phenomenal earnings weren't enough to satisfy elevated expectations. Shares of networking equipment provider Cisco dropped 8.4% despite raising revenue guidance and projecting its AI infrastructure revenue will nearly double to US$7.5 billion over the next year. Similarly, shares of chipmaking equipment supplier Applied Materials fell 5.1% despite forecasting revenue well above expectations and noting customer demand visibility now extends to 2030. With both stocks surging this year, the market viewed these stellar reports as confirmation of AI growth rather than fresh catalysts.

With nearly all S&P 500 companies having reported, the index is on track to post four consecutive quarters of over 20% earnings growth, which is sustaining the broader US market rally. We explore this trend in more detail below in our Chart of the Week.

Results from Cisco and Applied Materials, supported by similarly strong earnings from AI infrastructure providers CoreWeave and Super Micro Computer, illustrate that the AI buildout is accelerating and generating real revenue. However, with lofty valuations, investors are treating exceptional performance as the baseline, penalizing companies that fail to provide significant new growth catalysts.

Last week, short-term US bond markets stabilized and rallied following the US consumer price index (CPI) report, which aligned to investor expectations and softer-than-expected producer price index (PPI) data—offering a temporary reprieve from inflation concerns, as the two-year US Treasury yield moved 3 basis points lower to close the week at 4.17%.

Core CPI, excluding energy and food, rose 0.2% month-over-month and 2.5% year-over-year—marking its slowest annual pace since March 2021. While July’s inflation data met expectations, energy price forecasts were revised upward amidst the conflict in the Middle East. The Energy Information Administration (EIA) raised its 2026 retail gasoline and diesel price forecasts by 3.7% and 5.4% in its most recent short-term energy outlook report. Consequently, markets have not fully ruled out a 25-basis-point rate hike by the US Federal Reserve in September, though the likelihood dropped from 44% to 32% based on the inflation data and weaker US retail sales. Inflation concerns have built throughout the year and have pushed US long-term rates over 5%. The US government recently sold US$25 billion of 30-year bonds at a 5.216% interest rate, the highest rate on a US government bond sale since 2001. Major investors are demanding greater compensation for buying debt as concerns over US total debt continue to increase. 

Nvidia’s US$500 billion financing partnership announcement with six major asset managers (Apollo Global Management, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs, KKR) initially elevated perceived credit risk, as witnessed by widening five-year Nvidia credit default spreads. However, credit sentiment later stabilized after Nvidia CEO Jensen Huang noted limited direct exposure within the structure, and that financing platforms would be independently operated. As strong AI infrastructure spending and new hyperscaler bond issuance test the absorption capacity of public debt markets, the industry is increasingly exploring private credit arrangements. 

Against a backdrop of private credit industry concerns regarding lending standards, valuation transparency, and quarterly redemption pressures, alternative asset manager Blue Owl issued a US$750 million bond offering—upsized from US$500 million on the back of strong investor order demand. According to Bloomberg, the bond matures in 10 years, offers a 6.75% fixed coupon and an approximate spread of 220 basis points above the risk-free US treasury benchmark. Additionally, the bond is senior unsecured with a BBB+ investment grade rating by third-party agency Fitch. Reported bond proceeds would be used in part to pay down their floating-rate revolving loan facility—mitigating near-term financing risk while allowing the operational flexibility to tap into the revolving credit line.