Geopolitics continue to drive much of the narrative across financial markets and major economies, with recent developments adding another layer of complexity to an already uncertain backdrop.

After weeks of escalating rhetoric and shifting deadlines, the US and Iran reached a temporary ceasefire tied to the reopening of the Strait of Hormuz for commercial shipping. Markets responded as expected, with equities recovering some losses, oil prices pulling back, and bond yields easing. Lower energy prices, if sustained, should help relieve some of the pressure on consumers and businesses and take a degree of strain off inflation expectations. 

That said, the more realistic interpretation here is less bad rather than fully resolved. While the ceasefire reduces the risk of a more severe disruption, it does not remove the underlying fragility. For many economies and businesses, a softer second quarter is still likely. The path from here will depend on whether this period evolves into something more stable or gives way to renewed volatility.

This is very much the type of environment we had in mind when we shifted to a more defensive position late last year. Our focus has been on protecting capital and maintaining flexibility while conditions remain unclear. That approach has helped insulate portfolios through recent swings, and we continue to be deliberate in how we allocate capital from here. We are watching closely for opportunities to redeploy into equities, but would prefer to see a clearer path forward before doing so in a meaningful way.

Economic data is beginning to reflect some of this pressure. Growth has moderated across several major regions, with weakness most visible on the consumer side. Hiring trends have softened and cost pressures remain elevated, both of which are consistent with a slower and more uneven expansion.

In Canada, the picture remains mixed. Manufacturing has stalled and services have been under pressure as consumers spending slows, while business confidence has improved modestly alongside hopes for some geopolitical stabilization. While Canada may benefit from its position as an energy exporter in certain scenarios, the broader backdrop still points to a more challenging growth environment than what we have experienced in recent years.

Corporate earnings expectations have held up reasonably well so far, particularly in energy and parts of technology. Outside of those areas, revisions have been more limited, which suggests estimates may not yet fully reflect the softer economic backdrop. As a result, upcoming corporate guidance will be important in determining whether current expectations are sustainable.

There are always positive developments within the data, but in the current environment we think it is important to view them in balance with the broader risks. Uncertainty tied to geopolitical developments, including ongoing policy unpredictability out of the US, continues to influence business and investor confidence in a meaningful way.

Periods like this tend to test patience, but they also reinforce the importance of discipline. Our approach remains centered on providing steady, thoughtful advice and ensuring portfolios are positioned appropriately for the environment in front of us. We will continue to adjust as conditions evolve and always look to take advantage of opportunities when they present themselves.

As always, if you have any questions or would like to discuss your portfolio in more detail, we are here.