MARKETS IN REVIEW

Oil has become one of the market's most important variables again.

Energy markets have moved back to the centre of the investment conversation. The combination of geopolitical tensions and disruptions to energy supply has pushed crude oil prices significantly higher, creating a renewed source of uncertainty for investors.

The importance of oil extends well beyond energy companies. Higher crude prices eventually feed into transportation, manufacturing, logistics and consumer prices. If elevated energy prices persist, inflation could prove considerably more difficult to bring back toward central-bank targets.

This creates a particularly important relationship for investors to watch. Higher oil prices can lead to higher inflation expectations, which can reduce the ability of central banks to lower interest rates. That can push bond yields higher and place additional pressure on equity valuations.

The bond market may be telling us more than the stock market.

Equity markets have remained remarkably resilient, but the bond market has become considerably more challenging. Long-term government bond yields have moved higher as investors demand greater compensation for inflation, government borrowing and the amount of debt being issued.

This matters because the long-term interest rate is effectively one of the most important inputs used to value financial assets. When investors can earn substantially more from government bonds, the price they are willing to pay for future corporate earnings can change.

Higher yields can therefore create pressure on stocks even when corporate earnings remain healthy. This is particularly relevant for companies whose valuations depend heavily on earnings expected several years into the future.

The Federal Reserve's September rate increase has added another layer to the discussion. Investors are now watching to determine whether the move represents an isolated adjustment or the beginning of a longer period of restrictive monetary policy.

The AI story is moving from investment to return on investment.

Artificial intelligence remains one of the strongest structural growth themes in global markets. Semiconductor companies, cloud providers, data-centre operators and technology companies continue to invest enormous amounts of capital in AI infrastructure.

The conversation, however, is beginning to change.

The market no longer needs to be convinced that AI is important. Investors increasingly want evidence that the extraordinary amounts of capital being deployed will eventually translate into meaningful revenue, productivity and earnings growth.

That distinction could become increasingly important. When a new technology is in its early stages, investors are often willing to pay for the possibility of future growth. As the investment cycle matures, expectations shift toward actual economic returns.

This is why upcoming technology earnings will be so important. Investors will be looking closely at capital expenditures, data-centre spending, AI-related revenue growth, margins and management commentary surrounding future investment.

The relationship between the world's largest economies remains important.

U.S.–China relations remain a significant source of uncertainty for global investors. Trade policy, tariffs, semiconductor restrictions, artificial intelligence and Taiwan all have implications that extend far beyond the two countries themselves.

A more stable trading relationship would remove one source of uncertainty for multinational companies and global supply chains. Conversely, renewed escalation could create additional costs for manufacturers and technology companies and potentially add to inflationary pressures.

China itself presents a mixed economic picture. Weakness in the property sector and domestic demand continues to weigh on the economy, while government support and significant investment in technology and artificial intelligence provide potential sources of future growth.

For global investors, China's trajectory matters well beyond Chinese equities. Changes in Chinese economic activity can influence commodity prices, industrial demand, manufacturing, emerging markets and resource-heavy economies such as Canada.