We start this edition of Market Factors with Scotiabank’s picks for the most attractive market sectors and stock selection methods - individual stocks for further research are included. Section two details research indicating AI’s small but increasing effects on unemployment. The diversion is musical and we have quick hits as always.
Equities
QARP and software
Scotiabank strategists led by Jean-Michel Gauthier assess the attractiveness of each Canadian market sector each month according to growth, value and momentum. The most recent update found cyclical sectors in an upswing despite a big retreat in commodity sectors. Banks, along with energy and insurance, lead the way.
The July sell-off in Canadian momentum stocks was less intense than in the U.S. Domestic stocks with the highest three-month price momentum saw a peak in volatility in April, indicating extreme risk of a reversal that did indeed occur.
The gold miner stocks that made up the bulk of the highest price momentum category early in the year have fallen back, forming the most obvious evidence of momentum underperformance. Since the beginning of June, the gold-heavy S&P/TSX Materials Index has underperformed the S&P/TSX Composite by more than 10 percentage points.
Momentum stocks have historically underperformed consistently after a period of heightened volatility, implying that investors should still be cautious about adding to precious metals stocks for the foreseeable future.
Mr. Gauthier is optimistic about software stocks and Shopify’s price surge Wednesday is already proving him prescient. The sector had underperformed significantly in the leadup to July’s volatility, leaving its value ranking the highest since 2022. Stocks he considers “prime candidates for a rebound” include Constellation Software Inc. (CSU-T), Shopify Inc. (SHOP-T), Descartes Systems (DSG-T), Open Text Corp. (OTEX-T), CGI Inc. (GIB-A-T), Kinaxis Inc. (KXS-T), and Thomson Reuters (TRI-T).
The strategist also recommends Canadian QARP – Quality at a Reasonable Price - stocks. This will allow investors to benefit from the ongoing rally in value stocks and it also includes more cyclical sectors like energy that are performing well (whereas a straight value investment strategy would not).
Scotia’s most recent monthly strategy report helpfully provided a list of QARP stocks. Each stock is rated by value, growth, momentum and quality and those combine to make an overall rating. The stocks with the highest overall ratings are Tamarack Valley Energy Ltd. (TVE-T), Athabasca Oil Corp. (ATH-T), Russell Metals (RUS-T), Primaris REIT (PMZ-UN-T), Bank of Nova Scotia (BNS-T), Headwater Exploration Inc. (HWX-T), Power Corp. of Canada (POW-T), Toronto-Dominion Bank (TD-T), Suncor Energy Inc. (SU-T) and Peyto Exploration and Development Corp. (PEY-T).
Protesters gather with banners and placards outside the offices of Google Deepmind at a protest organized by PauseAI UK in London on Feb. 28, 2026.JUSTIN TALLIS/AFP/Getty Images
Economy
AI causing unemployment
Morgan Stanley economist Diego Anzoategui continues to track the effects on AI adoption on U.S. unemployment. He compiles labour market data, job postings, task reallocation announcements and company earnings call transcripts among other measures. The good news is that the job displacement has been marginal so far – adding 0.15 percentage points to the unemployment rate at most as of the end of June 2026.
Evidence of AI’s impact on labour markets is, however, more and more apparent. The 0.15 percentage points, for one, is up from 0.10 at the end of 2025. The jobless rate is rising more quickly in industries most exposed to AI and those displaced in these sectors are having more difficulties re-entering the work force.
Younger workers are feeling the brunt of AI-related displacement. Workers aged 22-27 in AI-affected industries saw their jobless rate increase from 2.6 per cent in 2023 to 4.0 per cent at the end of June 2026.
Mr. Anzoategui concludes that AI effects remain hard to find in aggregate U.S. data. At the same time, “the occupation-level signal has strengthened, the statistical significance of the results has improved, and worker-level outcomes increasingly point to weaker labour-market conditions in occupations most exposed to AI.”
Ellie Rowsell of British rock band Wolf Alice performing at the annual Clockenflap music festival in Hong Kong in 2018.ANTHONY WALLACE/AFP/Getty Images
Diversions
Mercury Prize nominees released
The Mercury Prize nominees, my best source of new music suggestions in the same way the Booker Prize nominees are my preferred referrals for new authors, have just been released. I rooted for England in the World Cup too - I might unwittingly be coming down with Anglophilia.
I’ve been following the Mercury Prize nominees since 2015 when the selection of Wolf Alice led to some of my favourite music. alt-J was a nominee in 2017 (Left Hand Free is still a fun song although it came out earlier), the Arctic Monkeys and King Krule were nominated in 2018 and the list goes on.
The biggest finds in recent years include Arlo Parks in 2021 (Hurt still sounds great), Beth Gibbons (of Portishead fame) with a solo album in 2024 and the new FKA Twigs song Eusexua last year.
A quick listen to this year’s nominees didn’t uncover anything that really grabbed me. Olivia Dean’s Man I Need was quality R&B I might return to and Nia Archives’ Forbidden Feelingz was challenging in a way that might warrant another shot.
Remarkably, new songs by Paul McCartney and Suede are nominated this year. I didn’t listen to those - no need to risk tarnishing legends.
The essentials
Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.
Globe Investor highlights
Ted Dixon profiles three high-yielding dividend payers that are seeing insider buying
CIBC’s chief market technician Sid Mokhtari reveals his top 10 stock picks for August
Larry MacDonald analyzes what the shorts are up to on the TSX
Tom Bradley on investing’s most misleading phrases - and a truth you’ll almost never hear
Jamie McGeever points out that Wall Street’s performance isn’t so “exceptional” when zooming out to the global stage
Why Apotex has been a standout stock since its IPO despite Trump’s tariff threats
SpaceX slides as AI spending worries overshadow early returns
Quick hits
BofA Securities head of U.S. equity strategy and quant strategist Savita Subramanian made the important observation that financial risk for hyperscaler tech companies is “moving to the footnotes.” Data centre financing is evolving towards special purpose vehicles with no representation on balance sheets. The liabilities are just noted in the footnotes.
Every summer, Morgan Stanley surveys their research interns for consumption habits and predictions about the future in order to uncover trends among younger age groups. The interns are a specific demographic - not only young but driven and ambitious (virtually all are from top schools) - so the survey results are often thoughtful and forward-looking. This year, the survey uncovered the popularity of Waymo, high hopes for humanoid robots, and preferences for Spotify, Youtube, HBO, Apple Pay and Instagram.
The high profit margins in the toxic waste disposal sector makes sense when you hear the details. No hazardous landfill sites have been permitted since 1996, no related incinerators were built between 1997 and 2017 and BofA analyst Michael Feniger estimates that the ratio of waste generators to disposal facilities has doubled to 23.3 times since the late 1990s. BofA cites Clean Harbors (CLH-N) as the biggest beneficiary.
Read this week’s earnings and economic calendar here