Flashing red

Good afternoon, everyone. 

In today’s letter:

— Taylor Scollon

Headline inflation hit 3.2% in May as gasoline prices surged. That was a bit above what most economists were forecasting, but not an enormous surprise given the shock to energy markets that drove much of the jump. Core measures of inflation that exclude energy prices were much more subdued at 2.2% on the year, and with a deal in the works to reopen the Strait of Hormuz, gas prices are likely to continue falling. All of that means the Bank of Canada isn’t likely to shift off its posture of holding interest rates steady any time soon.

Some stock market vets are flagging growing risks to equities. Jim Paulsen warned in a recent note that a number of signals that stocks are overvalued are flashing red, including investor bullishness (“Since 1988, whenever the allocation of stocks less cash nears or exceeds 50% of the portfolio, the stock market has often struggled. Currently this measure is at almost 55%”) and economic policy is becoming more restrictive. “My guess is any pullback may prove to be a larger 10% to 20% correction,” Paulsen warned. Meanwhile, on a recent podcast, Jeremy Grantham said the battle between the Mag7 for dominance in AI could be a “very messy blood curdling game” — potentially a problem for the stock market more broadly given how much of the main indexes are now made up of these tech giants.

Canadians will be able to legally wager on prediction markets. Wealthsimple will begin offering event contracts through a partnership with U.S. prediction market platform Kalshi. For now, the markets will be limited to wagers on economic indicators, financial markets, and weather — bets on sports and politics won’t be permitted. Canadians have been able to skirt regulations to access prediction markets using VPNs, but this will be the first legal product in the space permitted under newly adopted regulations.

Maybe EVs aren’t dead in Canada after all. Sales of EVs in the first four months of 2026 were 21% higher than the same period last year, and a J.D. Power survey found that a larger share of Canadians (though still just 34%) were somewhat or very likely to make an EV their next vehicle. Higher gas prices are likely one of the main factors driving increased adoption, along with the reintroduction of incentives that offer EV buyers up to $5,000 back on models made in Canada or in countries with which Canada has a free trade deal.

Back-to-school shopping is getting pulled forward. School may not even be out yet for many kids but retailers seem to think parents are already stocking up on pencils and binders for next year. Both Walmart and Amazon are touting deals for school supplies, apparently driven by parents with stretched budgets hunting for bargains over a longer period of time. “The way I used to do it, the Thursday before school we popped in the car and did it all at once,” one parent told The Wall Street Journal. “We just can’t do that anymore.” The pull-forward of seasonal shopping is part of a larger trend that’s seen Christmas, Boxing Day, and Black Friday/Cyber Monday sales starting earlier and running longer as retailers try to appeal to budget-conscious customers.

We asked Farzana Damji, Head of Life, Health and Wealth Product Development RBC Insurance, about how Canadians’ insurance needs are changing, how much financial protection people need, whether insurance can really be used as a way to build wealth, and how the insurance landscape is changing.

Beyond an emergency fund, what's the most overlooked form of protection for a single person who doesn't have the safety of a dual-income household to fall back on should they get sick or lose their income?

In the case of an unexpected injury or illness that prevents you from working, a single person often experiences immediate impact on their savings. Even healthy emergency funds can be depleted quickly. Disability insurance provides income replacement to ensure that ongoing expenses – mortgage payments, medical treatment options, daily needs – can continue. This financial security means you can focus on your health without the anxiety that often comes with financial uncertainty. 

The numbers are higher than many think. In any given week, 500,000 Canadians miss work due to a psychological health issue, and 1 in 5 will experience a mental health issue this year, according to The Mental Health Commission of Canada. 

A lot of single Canadians are caught in a squeeze of supporting aging parents now, with no one lined up to support them later. How should someone in that position think about sequencing their own protection against the help they're giving their parents?

I’m glad you asked this question, because it’s real for a lot of families. Consider what might happen if the primary caregiver becomes ill or injured and isn’t able to continue earning their regular income. Disability and critical illness insurance can ensure finances are stable during these difficult times. 

Open conversations with aging parents can also help to create long-term financial security. If your parents have life insurance, for example, that may lessen the burden of their end-of-life expenses or even provide a small inheritance, after they’re gone. This may help to offset some of the financial support you provided during their life. 

I also recommend becoming familiar with any group benefits you may have access to specific caregiver support programs through your workplace. Many are available as part of your existing plan, with no additional cost. For example, employee assistance programs (EAP) offer personal wellness support and elder care options that may help you through some of the more challenging moments. 

When it comes to divorce, what are the mistakes you see most often with regards to insurance and beneficiaries?

When living through a divorce, remember to review your insurance policies (including workplace group benefits). Beneficiaries surpass legal authority of wills, so ensure you’ve carefully named the people you want to receive any payout. As an example, is your ex- still named as 100% beneficiary in your life insurance policy? What might this mean for your children, and any children your ex- might care for within remarriage?

Timing is also important. There may be a court order to continue providing insurance to a spouse or children until the divorce has been finalized. Connect with your legal counsel and financial advisors to review the best options for your new family situation. 

Read the full Smart Money Q&A on our website.