A Word from Mike

Hello,

Flows through the Straight of Hormuz (SoH) have yet to meaningfully improve, but financial markets have taken this bout of uncertainty in stride. I discuss geopolitics, provide an update on earnings season, and dive into Canada’s immense potential in more detail below.

Talks, Tensions and Conditional Resilience

Despite mixed signals, the trajectory of the U.S.-Iran conflict has changed little over the past two weeks. Diplomatic efforts are ongoing and tensions around the Strait of Hormuz (SoH) continue, but importantly, the ceasefire has largely held. This week’s ceasefire extension by the U.S. is a constructive step, providing more time for a durable resolution and the eventual normalization of traffic through the SoH.

Financial markets have displayed notable resilience. Equities have rebounded to pre-conflict levels, while bond yields and oil prices have retraced modestly. Taken together, markets appear to be interpreting the conflict as a short-lived supply shock—primarily affecting energy prices—rather than a catalyst for a broader economic slowdown. The underlying assumption is that economic expansion continues, supporting corporate fundamentals, albeit with uneven effects across major economies.

While markets have shown an ability look through near-term uncertainty, the geopolitical backdrop remains fluid and less-than-favourable outcomes remain plausible. Following the sharp recovery in asset prices, I would expect a period of digestion. For markets to build on recent gains, three conditions will likely need to be met: (1) stability in the ceasefire alongside improving vessel flows through the SoH; (2) economic data continuing to show the economy is absorbing the energy shock without a material growth slowdown; and (3) confirmation of corporate earnings strength.

Earnings Strength Outweighs Uncertainty

In recent years, equity markets have grown accustomed to looking past unexpected events, focusing instead on fundamental drivers. Early results from the Q1 2026 U.S. reporting season support that stance. Both the proportion of companies exceeding expectations and the size of those “beats” are running firmly above historical norms so far.

Large U.S. banks led off with broadly positive results on the back of strong trading and capital markets revenues. Subsequent reports across communication services, industrials, and consumer sectors have shown similar trends, underscored by solid earnings delivery and measured guidance. Together with resilient economic data, these results suggest that both businesses and consumers have thus far weathered recent geopolitical disruptions better than initially feared.

Attention now turns to the Big Tech firms reporting later this month. Given their outsized contribution to recent earnings revisions, trends in artificial intelligence (AI) investment and demand for compute will be key to shaping market sentiment.

Canadian equities have also held up well. While the bulk of the domestic reporting season is still ahead, earnings forecasts for the S&P/TSX Composite have moved higher from already solid expectations of mid-teens growth coming into the year.

Canada’s Untapped Potential

The disruption in the SoH has sharpened the focus on energy security, motivating buyers in Asia and Europe to accelerate efforts to diversify supply away from the Middle East. Canada, with its deep resource base, stable institutions, and reputation as a reliable producer, is well positioned to benefit.

Canada is the world’s fourth-largest oil producer and the fifth-largest natural gas producer. Yet more than 90% of our oil and natural gas exports flow only to the U.S. Canada also ranks second in uranium production at a time when nuclear power is regaining traction. Beyond energy, Canada holds significant reserves of copper, nickel, cobalt, and lithium—key inputs for global energy transition (electrification) and advanced manufacturing—as well as global leadership in potash, a critical agricultural input.

The Carney government has taken steps to convert these opportunities into growth. Last year, the Major Projects Office was established to prioritize the development of strategic infrastructure, including LNG terminals, critical mineral mines, and clean electricity systems, with other initiatives aimed at streamlining approvals. While execution will take time and require sustained investment, the alignment of global demand, Canada’s resource wealth, and a more proactive policy framework increases the likelihood that Canada can translate long-standing potential into tangible economic growth.

Takeaway

Markets are currently balancing resilience with uncertainty. While investors have shown a willingness to look past geopolitical stress, the rapid recovery in valuations suggests that a relatively benign outcome is increasingly discounted in prices, leaving less room for disappointments should near-term developments fall short of expectations. I will continue to closely monitor developments in U.S.-Iran relations. Maintaining a long-term perspective and adhering to a consistent investment plan remain valuable tools for navigating the current environment.

Highlights

Equity market cycle recovers to new highs with participation broadening

Short-term S&P 500 technical indicators are overbought following its 13 percent rebound, but we view the strength of the advance-decline lines near cycle highs and the bottom in Technology following its Q4–Q1 correction as reasons to remain cautiously optimistic.

Regional developments: Canada’s inflation rate jumps to 2.4%, and households rein in travel plans on higher costs; Software performance in the U.S. bounces back with its strongest week in 25 years; Middle East crisis starts to take its toll on Europe and UK; Semiconductor demand supports South Korean GDP and equities rally

Please take some time to review the Global Insight Weekly.

Ottawa will unveil its spring economic update on April 28

The Mark Carney government, fresh from its three-byelection sweep that gave it majority status in parliament, will build on its 2025 budget amid geopolitical tensions, high energy prices and looming CUSMA negotiations with the U.S. The update is expected to factor in new spending and affordability promises made since the budget. On April 14, Canada removed excise tax on gas and diesel till Labour Day. The fuel tax holiday is expected to cost the government around $2.4 billion.

Soaring fuel prices drive up Canada’s inflation rate

After its largest monthly spike in more than a year, Canada’s annual inflation rate ticked up to 2.4% in March. Much of the increase was due to rising energy prices, a direct result of the conflict in Iran. The price at the pumps was up 21.2% in March. Food prices were up 4.4%; with fresh vegetables jumping 7.8%. The year-over-year rate comparison would have been even greater if not for the fact that the prices in March 2025 still included the consumer carbon tax.

Canadian Government Braces for Turbulent USMCA Renegotiation Process 

Prime Minister Mark Carney has created a 24-member advisory committee to guide Canada’s approach to the potentially difficult review of the United States-Mexico-Canada Agreement (USMCA). Chaired by Dominic LeBlanc, the group brings together political veterans and leaders from key sectors including banking, energy, manufacturing, and labour. U.S. tariffs on Canadian steel, aluminum, and autos continue to weigh on key industries, though USMCA protections in place for other goods currently allows close to 90% of Canadian exports into the U.S. tariff-free. At the same time, Canada’s chief negotiator, Janice Charette, has cautioned that negotiations will likely extend beyond the July 1 review deadline and involve “turbulence”. She is urging Canadian businesses to advocate directly with U.S. partners to reinforce the importance of their trading relationships, highlighting Canada as the largest source of revenue for many American firms. While Ottawa aims to preserve core elements of the agreement, according to RBC Capital Markets, potential areas of concession include dairy quotas, automotive rules of origin, Canada’s trade with China, and digital content and data rules.

Canada invited more than 100 global investors to fall summit

With the goal of attracting billions of dollars in foreign investment, Prime Minister Mark Carney announced that the two-day event will be held in Toronto this September. The Canada Pension Plan Investment Board and the Public Sector Pension Investment Board will co-host the summit. (Last week, RBC Thought Leadership released its latest report, Capital Gains, which outlines how Canada can unlock the $1.8 trillion it needs for growth in six strategic industries.)

Elevated gas prices bumped up the U.S.’s inflation rate

Energy costs rose 10.9% during March compared to February, which sent the headline CPI rate up 0.9% during the period. Year-on-year CPI shot up to 3.3%--its highest level in two years. Tariff-hit goods such as apparel, auto parts, and personal care products also experienced price increases in March. If high oil prices persist, RBC Economics expects to see pressure on core goods due to higher input costs.

Trump administration to begin refunding US$166 billion of tariffs—plus interest

Two months after the Supreme Court struck down the “Liberation Day” tariffs, the U.S. government began accepting requests for refunds this week. The government built a new processing system for the 330,000 importers who paid International Emergency Economic Powers Act (IEEPA) duties. While companies can request a refund, consumers, who may have paid more for goods and services over the past year because of the tariffs, are unable to do so.

China’s economy grew 5% in the first quarter

Exports boosted the economy, however, property investments fell 11% year-over-year in the first quarter, while home sales tumbled about 19%. After rising in January and February, retail spending and export growth eased in March, suggesting the war on Iran could cast a cloud over the economy. China is partially shielded from the Middle East-related energy shock thanks to its oil stockpile and sizeable renewable energy sector. However, analysts say persistently high commodity costs would erode Chinese manufacturers’ margins and dampen the investment outlook.

Europe has "maybe six weeks of jet fuel left" 

The warning came from the International Energy Agency, which noted in its monthly oil market report that if Europe is unable to replace more than 50% of its Middle East imports by June, it would result in “flight cancellations, and demand destruction.” Two of Europe’s largest airlines have already started cancelling flights—KLM shelved 160 upcoming flights and Lufthansa announced that it will ground its regional airline, a 27-aircraft fleet that caters to business travellers.

Charts of the day

Interesting tidbits

• $3.5 million. The average net worth of Canada’s wealthiest 20% of households in 2025. The group accounted for 65.7% of Canadian household wealth. Those in the bottom 40% had an average net worth of $81,650.
• Entrepreneurial spirit is particularly strong among younger Canadians. In a new poll of 3,000 aspiring and early-stage entrepreneurs, 68% of Gen Z respondents said Canada is a globally competitive place to grow a business. In contrast, just 47% of Boomers and 50% of Gen Xers agreed. The survey, conducted for the new digital media outlet Be Giant, found that those with businesses outside Canada and those who have considered leaving blame cost of living (50%) and tax structure (37%) as the top challenges.

Today’s funny 

“I’m just saying, if we tear up the pillows and rip up the mattress, it might make our place look more lived in.”

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