A range of developments continues to shape the investment landscape, with potential implications for the macro outlook. We discuss recent corporate earnings updates, monetary policy, and U.S. political risk in more detail below.

Corporate earnings in focus

U.S. earnings season is well underway, with more than a quarter of S&P 500 companies reporting Q4 2025 results so far. Overall results have been encouraging, with companies beating consensus profit estimates near their historical average rate. That said, elevated valuations suggest a fair amount of optimism may already be reflected in prices.

Despite broadly upbeat results, the pace of positive profit surprises has moderated somewhat relative to prior quarters, leading to more muted or negative share price reactions in some cases. This dynamic reinforces the importance of sustained earnings delivery and guidance for the coming quarters, particularly in an environment where above-average valuations leave markets potentially more sensitive to disappointments.

Investor focus also seems to be incrementally shifting toward the quality of earnings as it relates to artificial intelligence (AI) investment. Markets are becoming more discerning, favouring companies that can demonstrate tangible returns on AI spending alongside durable cash flows, strong balance sheets, and consistent shareholder returns via dividends and share buybacks—attributes that can enhance resilience should market conditions become more challenging.

North of the border, earnings season is still in its early stages. Large Canadian banks reported solid results late last year, and more companies are set to report in the weeks ahead. In addition to the banks, the Materials and Info Tech sectors are likely to garner attention amid supportive commodity prices and AI-related opportunities and risks. Consensus expectations point to high-single-digit earnings growth in Q4 2025 for the S&P/TSX Composite and double-digit growth in 2026.

Central bank decisions

Both the Bank of Canada (BoC) and the Federal Reserve (Fed) left interest rates unchanged at their latest meetings. In Canada, expectations of a modest rebound in the labour market and economic growth have allowed BoC to remain patient. While officials acknowledged ongoing uncertainty around trade policy, they emphasized a willingness to adjust rates should the outlook materially change.

Meanwhile, the BoC continues to anticipate a return to trend-level growth over the medium term. With the economic impact of tariffs to date more limited than initially feared, growth forecasts may ultimately prove conservative. However, ongoing trade tensions and upcoming USMCA renegotiations in the summer remain wildcards that we will continue to monitor. In response to President Trump’s recent tariff rhetoric over Canada’s relations with China, Prime Minister Carney emphasized that Canada was looking to diversify trade rather than pursue broad-based free-trade agreements.

In the U.S., the Fed’s decision to pause its rate-cutting cycle reflected confidence in the underlying strength of the U.S. economy, even as inflation remains above target. Fed Chair Powell reiterated the central bank’s commitment to both price stability and full employment, reinforcing a data-dependent approach. Taken together, the tone suggests that future rate cuts, when they occur, are likely to be gradual and carefully calibrated.

Persistent U.S. policy uncertainty

Despite continued economic resilience, U.S. policy uncertainty has resurfaced. Recent events have renewed concerns around tariff policy and domestic stability, with heightened political tensions around immigration enforcement complicating efforts to finalize federal funding legislation. What was previously expected to be a routine funding vote is now facing resistance in the Senate, as Democratic Senators have cautioned that they may withhold support for the bill if it includes funding for the Department of Homeland Security, raising the risk of another partial federal government shutdown, potentially as early as this weekend.

Although a shutdown—if it occurs—would likely weigh on economic activity in the short term, history suggests these disruptions tend to be temporary, with lost output largely recouped once the government reopens. From a market perspective, persistent policy uncertainty has coincided with a softer U.S. dollar and renewed strength in precious metals. While political headlines could contribute to near-term volatility, we believe they are unlikely to alter the broader trajectory of the U.S. economy, which continues to expand at a steady pace.

Takeaway

Corporate earnings and underlying economic fundamentals remain broadly supportive of equity markets, even as policy uncertainty and elevated expectations introduce the potential for short-term volatility. While market pullbacks can be uncomfortable, maintaining a long-term perspective remains essential. In this environment, we believe staying invested—while remaining attentive to evolving risks—continues to be a prudent approach.