Underwhelming Canadian economic data has attracted attention recently, but we feel the headlines tell only part of the story. At the same time, investors continue to navigate an uncertain geopolitical backdrop as developments in the Middle East and global trade remain key drivers of market sentiment.

Much of the market’s attention remains focused on the Strait of Hormuz. While Trump has repeatedly suggested that an agreement with Iran is close, a formal deal has yet to be reached. Prior to the conflict, roughly one fifth of the world’s oil shipments moved through the Strait, and it’s continued closure has kept energy prices elevated. So far, the global economy has been resilient, but prolonged supply disruptions would likely place serious pressure on both growth and inflation.

While we are encouraged by the resilience of both the economy and corporate profitability, recent swings suggest markets are hoping for a relatively favorable outcome. A finalized agreement that restores transit through the Strait would likely support further gains while helping ease inflation concerns and lower bond yields. Until there is greater clarity, I continue to believe a more balanced and less optimistic approach is warranted. This is one of the reasons we positioned portfolios more defensively several months ago as geopolitical and economic risks began to build.

Here in Canada, recent GDP data sparked concerns after economic activity contracted modestly for a second consecutive quarter. However, the underlying details were not as bad than the headline figure suggests. Much of the weakness reflected a decline in government spending following unusually strong expenditures last year. Consumer spending remained positive, while investment in equipment and intellectual property improved.

Population trends also make the data more difficult to interpret. With population growth slowing, total economic output understates some of the underlying strength in the economy. Economic activity on a per person basis improved during the quarter, suggesting conditions were somewhat better than the headline numbers imply. Overall, the data points to a Canadian economy that remains sluggish and uneven.

Trade policy remains an important risk. Our expectation is that the core framework of CUSMA will remain intact, but the review process is likely to generate it’s share of unsettling headlines. Even limited tariff measures can create uncertainty and weigh on business confidence, particularly when companies are already navigating a challenging environment.

Corporate earnings continue to provide important support for markets. Canada’s major banks recently reported another solid quarter, benefiting from equity markets and improved capital markets activity. While results generally exceeded expectations, share price reactions were more muted as valuations across the sector have recently moved above historical averages.

Markets continue to contend with a wide range of uncertainties, from geopolitical tensions and trade negotiations to shifting economic expectations. While headlines can create short term volatility, corporate earnings and underlying economic resilience can be supportive. Our focus remains on protecting capital during periods of heightened uncertainty while maintaining the flexibility to capitalize on opportunities as they emerge. We believe patience, discipline and diversification remain essential in an environment where the outlook can change very quickly.

As always, if have any questions, please feel free to reach out.