As of writing, the U.S. federal government remains shut down. While the broader economic impact has typically been modest, the absence of official economic data releases during the standoff adds a layer of uncertainty. For now, investor attention is shifting to the Q3 earnings season, with renewed U.S.-China trade tensions adding to the backdrop of uncertainty. We discuss these developments in more detail in this economic update.
We are also proud to share our recent volunteering opportunity with the Guelph Food Bank – our team has been collecting non-perishable food products and raised $1,000 for the food bank, and we were excited to drop these off and volunteer at their warehouse facility. In a similar vein, we are wrapping up our sponsorship of Goals for Groceries night in partnership with the SEED and the Guelph Storm. Thank you to everyone who came out to support, volunteer with our team, and raise awareness for the great work the SEED does in our community.
Economic Update
Shutdown Continues
We're now past the two week point of the U.S. federal government shutdown, with lawmakers still unable to agree on terms to pass a spending bill. It remains unclear what it will take to bridge the apparent divide between Republicans and Democrats on key issues such as health care insurance subsidies to reopen the government.
Historically, U.S. government shutdowns have imposed only a temporary drag on growth, but the longer the shutdown persists, the greater the risk of more meaningful economic and market repercussions. With many federal workers furloughed and most government data releases on hold, the near-term economic outlook is increasingly difficult to assess.
Corporate Earnings
The quarterly reporting season kicked off last week, with U.S. banks setting a positive tone on the back of strong trading and investing banking revenues. In the absence of official U.S. economic data due to the government shutdown, company earnings and management commentary on the outlook will be especially valuable for insights into economic trends and consumer demand. We will be closely watching guidance for the remainder of 2025 and into 2026, particularly around capital expenditure plans and how companies are navigating unpredictable U.S. trade policy and tariff-related costs.
Consensus estimates for the S&P 500 currently point to high-single digit year-over-year earnings growth in Q3, indicating that U.S. corporate earnings should continue to expand barring an unexpected shock. Given elevated valuations that already reflect a favourable outlook, strong earnings delivery will likely be essential to support the ongoing uptrend in equity markets.
North of the border, Canadian stocks have fared well year to date, benefiting from a rally in gold prices and solid performance from the banks. As Canadian companies begin reporting financial results, we will be monitoring commentary from export-reliant industries to gauge the impact of U.S. tariffs and from consumer-dependent firms for insights into domestic spending trends. For the S&P/TSX Composite, consensus estimates are anticipating roughly 9% profit growth this year and nearly 13% in 2026.
Trade Tensions
China-U.S. trade tensions have resurfaced after China’s recent decision to impose additional export controls on rare earths minerals. In response, the Trump administration has threatened "much higher" tariffs on China, potentially taking effect November 1. The latest escalations may be “tactical posturing” ahead of a bilateral meeting between Presidents Trump and Xi Jinping, which is still expected to take place in late-October. Moreover, the Trump administration has so far shown a reluctance to fully follow through on policies that have generated significant adverse market reactions. While markets initially reacted negatively to these headlines, they have since steadied, suggesting investors are likely taking the view that a deal remains the most probable outcome. Nevertheless, the risk of elevated volatility in the near term could linger if talks falter or rhetoric intensifies.
Summary
With the U.S. government shutdown clouding the economic picture and renewed U.S.-China trade frictions contributing to uncertainty, we expect the Q3 earnings season to play a central role in providing an update on the economy and anchoring market sentiment. While some short-term volatility is possible, we believe "invested, but watchful" remains a sensible stance for portfolios as we continue to monitor developments on trade policy and corporate earnings.
Volunteering and supporting the Guelph Food Bank
On October 8th, our team had the privilege of volunteering with the Guelph Bank at their main facility, helping to prepare and stock their warehousing space in preparation for the holiday season. Combating food insecurity is a cause that is close to our hearts, and we are proud to support community organizations that are making a difference in the lives of our neighbours.
In addition to volunteering, we were proud to drop off 350 pounds of non-perishable food contributed by our team members, as well as a financial donation of $1,000 to support the critical work and support the Food Bank delivers to our community’s most vulnerable.
Goals for Groceries with the Guelph Storm – Thank you!
On October 10th, we were proud partner with The SEED and the Guelph Storm to create Goals for Groceries Night. Together, we managed to raise over $1,300 for the SEED through ‘Chuck-a-Puck’ sales and donations, as well as raise the profile of this keystone community organization.
Thank you to everyone who came out to the game and generously helped to support the SEED, as well as our volunteers who led and assisted the Chuck-a-Puck game!
For more information about 'Goals for Groceries', you can check the CHL website here.
For more information about the SEED, you can visit their website here.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.