Monthly Report: February 2026
A few topics our newsletter touches on this month:
- Our Thoughts: New Year, New Outlook
- By the numbers: January
- Other Things: Disruptors podcast, Global Insight Monthly, Arts in Ottawa corner
Our Thoughts: New Year, New Outlook
2026 has closed off its first month leaving us with lots to talk about. Trump has nominated the next Fed chair and resumed his trade war saber rattling (latest target: Canadian-made aircraft). The result on Friday was that the TSX wiped out most of its early 2026 gains in one day as precious metals/mining stocks led a pull-back. To make sense of what’s going on, we are going to step back and evaluate the current state of some of the key factors that influence portfolio asset mix: recent corporate earnings updates, monetary policy, and U.S. political risk.
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.
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.
Canadian banks reported solid results late last year, and more Canadian 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 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. The concerns over the independence of the newly nominated Kevin Warsh as chair will remain an ongoing discussion ahead of the mid-year handover from Powell.
Persistent U.S. policy uncertainty: 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. 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.
By the numbers (January):
The TSX was up 0.8% while the S&P 500 was up 1.5% in U.S. dollars (up 0.6% in $CAD). The Europe, Australia & Far East index (EAFE) was up 4.3%, while the Emerging Markets index was up 7.9%. The Canadian bond market was up 0.6%.
Interesting Listening/Reading:
- Disruptors - A dynamic <30 min RBC podcast hosted by John Stackhouse about reimagining Canada’s economy in a time of unprecedented change.
- To check out our Global Insight Monthly for January find the link here.
“Arts in Ottawa” Corner: Winterlude 2026
Spotlight on the amazing ice sculpture competition that is part of Winterlude every year. Back once again in Confederation Park, the sculptures will be on display for the length of the festival. The official competition took place this past weekend Jan 30-Feb 1. For more on events and things to do during Winterlude this year, head here.
Regards,
Mark, Peter, Sarah, Corinne & Nathalie
Gallivan Wealth Management of RBC Dominion Securities