Morning Markets for Friday, May 8, 2026

Key Concepts

• Private Credit: Non-bank lending where institutions or funds lend directly to companies.
• Direct Lending: A subset of private credit involving bespoke loans between a borrower and a single lender.
• AI-Driven Market Shifts: The impact of Artificial Intelligence on software company valuations and the subsequent risk to private credit portfolios.
• Redemption Requests: Investors attempting to withdraw capital from private credit funds, leading to liquidity constraints.
• Barbell Strategy: An investment approach balancing high-quality, deep-value stocks (e.g., Energy) with high-growth stocks (e.g., Tech/AI).
• Macro Indicators: Canadian unemployment rate (6.9%), job losses (17,700), and the impact of U.S. tariffs and geopolitical tensions (Iran).

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1. Canadian Economic Overview

• Labor Market: Canada shed 17,700 jobs in April, pushing the unemployment rate to 6.9%. Losses were concentrated in information, culture, and construction, while gains occurred in business, healthcare, and social assistance.
• Recession Outlook: Dominique Lapointe (Manulife) notes the labor market is "frozen" and weakening at the margins. While not in a full recession, the lack of job growth for younger workers (16% unemployment for students) is highlighted as a significant concern.
• Government Spending: The Parliamentary Budget Officer criticized the federal government for a lack of transparency regarding spending targets and results in the spring economic update.

2. Corporate Performance & Market Movers

• Telus: Shares traded lower following an 8% drop in Q1 income and a 40% decline in mobile phone additions. The company is pivoting toward AI-related services in Quebec and BC.
• Ford: The federal government committed $464 million to revamp the Oakville plant for heavy-duty pickup truck production by 2029, creating 1,800 jobs.
• Airbnb: Reported strong Q1 results with 18% revenue growth. David Sekera (Morningstar) views it as an attractive "four-star" stock, citing a shift in consumer spending from goods to travel experiences.
• Expedia: Shares fell ~8% due to conservative guidance, though analysts view this as an overreaction given strong Q1 bookings and EBITDA margin expansion.
• Aritzia: Reported a 35% profit jump and 28% comparable sales growth. UBS analyst Mauricio Serna highlighted the brand's successful digital expansion (41% of revenue) and ability to offset tariff pressures through strong sales momentum.
• CoreWeave: Shares dropped 13% after reporting a wider-than-expected net loss, sparking investor concerns about the profitability of its aggressive data center capacity build-out.
• Block: Shares rose ~6.5% after beating Q1 expectations and raising full-year forecasts, bolstered by a strategic pivot toward AI.

3. Investment Strategies & AI Perspectives

• Market Strategy: David Sekera recommends a "barbell strategy." He suggests harvesting profits from the energy sector (which saw significant gains) and reallocating into undervalued AI and tech stocks.
• AI "Shadow" Opportunities: Jeff Hall (Manulife) suggests looking beyond the obvious giants (like NVIDIA) to companies supporting the AI infrastructure, such as:
  • Corning: Providing fiber optic cables for faster data transmission.
  • Vertiv: Specializing in cooling systems for data centers to prevent hardware failure.
  • Storage Providers: Companies like Western Digital and Seagate that manage the massive data storage requirements of AI-driven cloud systems.

4. The Private Credit Reckoning

• Market Scale: The private credit market has grown to $1.8 trillion, with some estimates suggesting a $40 trillion total opportunity.
• The Crisis: The sector is facing a "crisis of confidence" as AI threatens the durability of software companies—a primary borrower group.
• Liquidity Issues: Major firms like Blue Owl and Blackstone have faced unprecedented redemption requests, forcing them to cap withdrawals to preserve fund value.
• Transparency Concerns: Unlike public securities, private loans are opaque. Critics, including Jamie Dimon, warn that hidden leverage and poor underwriting could lead to systemic issues, drawing comparisons to the 2008 subprime mortgage crisis.

Synthesis/Conclusion

The market is currently defined by a dichotomy: a robust, AI-fueled growth phase in U.S. equities contrasted with a cooling Canadian labor market and a brewing crisis of confidence in the private credit sector. While AI continues to drive massive capital expenditure in hardware and infrastructure, investors are cautioned to be selective, as the "gold rush" mentality has pushed some valuations into bubble territory. Simultaneously, the private credit market faces a critical test of its underwriting standards as liquidity tightens and the true impact of AI on software-sector profitability remains uncertain.