Despite resilient equity markets, headline-driven uncertainty persisted through February, with tariffs and technology in focus. We discuss these themes, as well as North American corporate earnings trends and the implications for Canadian trade, below.
Solid Corporate Earnings
As the fourth quarter of 2025 earnings season for the S&P 500 draws to a close, the index has achieved its fifth consecutive quarter of double-digit corporate earnings growth. The share of companies that exceeded profit expectations did, however, moderate. In an environment where stock valuations remain elevated, a narrower gap between reported results and forecasts could leave markets more sensitive to disappointments or adverse macro shocks.
Earnings results from some Big Tech firms were closely watched as a test of whether heightened AI-linked expectations can be maintained. Investors are increasingly looking for clear evidence that substantial investments in AI infrastructure and development will translate into tangible returns. Questions are arising related to the prospects for profit growth and the potential for AI-driven disruption in certain industries. This skepticism was evident when a major AI infrastructure firm recently delivered a “beat and raise”—exceeding revenue forecasts and lifting forward guidance— but was met with a subdued market response. Nevertheless, the Big Tech group, broadly speaking, remains supported by durable business models and reliable cash flow generation.
Canadian firms are also wrapping up their 2025 reporting season, while major banks reported their first quarter 2026 results. Bank earnings have been positive, with record profits driven by solid performance across key divisions and improved return on equity. Despite trade and geopolitical uncertainty, consensus estimates for the S&P/TSX Composite Index continue to point toward double-digit corporate earnings growth this year, underpinning a constructive outlook for Canadian equities.
Tariff Developments
Last week, the U.S. Supreme Court struck down tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA). The market reaction was largely muted. Investors had anticipated both the ruling and efforts by the administration to reinstate tariffs through alternative forms of legislation.
A 10% global tariff on U.S. imports came into effect earlier this week. The White House indicated that the tariffs could be increased to 15% "where appropriate". The new tariffs can remain in place for 150 days without Congressional approval. They are, however, likely to face legal challenges. Given the current composition of Congress, a vote to extend the tariffs appears unlikely, but the temporary measure provides time for the administration to restructure its tariff policy.
Other legislative pathways require formal investigations into national security risks or unfair trade practices, but offer more durable legal grounding. Still, the Supreme Court’s ruling reaffirmed that presidential authority over tariffs is not unlimited, reinforcing constitutional checks and balances and underscoring that more permanent trade measures require a more rigorous procedural path.
For Canada, the immediate economic impact remains limited. Roughly 90% of Canadian exports to the U.S. continue to flow tariff-free under exemptions within the U.S.-Mexico-Canada Agreement (USMCA). Meanwhile, sectoral tariffs on metals, autos, and other targeted parts of the Canadian economy remain in effect and continue to weigh heavily on the affected industries. As such, the scheduled USMCA review commencing in July remains consequential for Canada’s economic outlook, as do ongoing efforts to diversify trade away from reliance on U.S. markets and to invest in domestic productive capacity.
Our base case remains that the core USMCA framework will remain intact, given deeply integrated North American supply chains and the shared economic costs of disruption. Nevertheless, we expect negotiations to involve political signaling and sector-specific pressure points that could stoke near-term uncertainty. We will continue to monitor developments closely.
Takeaway
While markets remain susceptible to shifts in sentiment given elevated valuations and policy uncertainty, strong corporate earnings momentum is providing a basis for measured optimism. Trade uncertainty continues to influence business and consumer confidence, but equity markets are driven by corporate earnings over extended periods of time. Against a backdrop of steady economic fundamentals, we believe that maintaining a cautiously constructive stance in portfolios remains sensible.
If you have any questions, please do not hesitate to contact us.
Drew M. Pallett LL.B.
Senior Portfolio Manager and Investment Advisor
RBC Dominion Securities
Email: drew.pallett@rbc.com