The Bank of Canada is warning that financial markets are getting fragile and a sharp drop could be coming, which is bad for stock investors and homeowners with high mortgage rates.

• Stock gains are too concentrated in a few big AI companies, so any bad news for AI could crash the whole market.
• Hedge funds are a hidden risk in government bond markets, and if they pull back, things could break across the financial system.
• Canadian and US banks are quietly setting aside more money for loan losses, which is what they always do right before a downturn.
• Housing is weakening, and people with mortgage rates above 6.5% should refinance now before home prices fall further and trap them underwater.
• The Bank of Canada says it can handle a crash, but that is the same thing officials said before the 2008 crisis.

Outlook: Interest rates are expected to fall later this year as markets weaken, and the worst of the risk should pass by the second half of 2027.