Weekly market wrap

Tech earnings deliver, tariff saga continues

Key takeaways:

• This past week, markets were focused largely on two drivers - mega-cap tech earnings and tariff headlines.
• Corporate earnings season overall has outperformed expectations in the U.S. and Canada, driven in part by positive surprises in the technology sector. Last week, artificial intelligence (AI) giant NVIDIA delivered solid results, despite the overhang from trade restrictions in China.
• Meanwhile the tariff tit-for-tat continues. While the courts upheld the U.S. administration's tariff policy for now, there may be more legal headlines in the weeks ahead. U.S. trade negotiations with China also remain strained and have added to market uncertainty.
• Nonetheless, despite the ongoing uncertainty, the S&P 500 and Canadian TSX are up over 5% for the month of May. For the full year, the S&P 500 is slightly positive, while the Canadian TSX is up over 10% (in USD terms). Historically, a strong May has boded well for the forward 12-month market performance.

Tech earnings deliver in the first quarter

We know a key driver of stock-market performance is corporate earnings growth, and U.S. and Canadian companies have delivered solid results in the first quarter of 2025, especially in the U.S. technology sectors.

Last week's earnings report from NVIDIA, for example, confirmed strong demand for its artificial intelligence (AI) chips, despite the trade restrictions it faces in China. The company exceeded revenue and earnings estimates and grew its data-center business by 73%¹. The company underscored that demand from large global technology customers, including Microsoft, Meta and Amazon, continues to drive data-center revenues.

This comes as the mega-cap technology giants earlier confirmed that they will continue to spend on AI this year. In fact, four companies alone, Microsoft, Meta, Google, and Amazon, reaffirmed their capital expenditure for the year of north of $330 billion.

Our take: Overall, the technology sector results this quarter helped alleviate investor concerns that tariff uncertainty and large investments in prior years may slow down the pace of AI spending. In fact, technology companies remain committed to investing in AI and other innovations, and they continue to see potential attractive returns on these investments. The positive earnings reports were also reflected in S&P 500 returns, with technology and growth sectors leading the way higher in the month of May.

Corporate earnings growth on pace for mid-single digits in 2025

More broadly, S&P 500 and Canadian TSX earnings growth remain on track for mid- to high-single-digit annual growth in 2025. While earnings estimates have been revised downward this year as tariff and trade uncertainty have sparked caution in the outlook, investors still forecast positive earnings growth for nine of the 11 S&P 500 sectors and eight of the 11 Canadian TSX sectors.

Our take: U.S. and Canadian corporate earnings have remained resilient for 2025, supported by a solid labour market and inflation rates that have been contained so far. While we would expect some softness in the quarters ahead, especially as companies in the U.S. and Canada navigate a higher tariff environment, we don't see the scope for deep or prolonged periods of negative earnings.

We also could see a reacceleration in earnings growth in 2026. This could happen as the central banks potentially cut rates in the back half of the year, and corporations gain more clarity on tariffs and the operating backdrop. As we know, markets are forward-looking and could start pricing in better news ahead of an actual inflection in growth.

Tariff headlines continue, but investor fatigue may be settling in

While positive earnings surprises were certainly welcome by the market last week, investors also digested a slew of tariff headlines.

Regarding global trade negotiations, there was mixed progress. On the positive side, the U.S. administration delayed 50% tariffs on European allies, pushing these to July 9, alongside other major trading partners. However, with China, the White House indicated progress is "a bit stalled," and may require leaders from both nations to come together for next steps. The administration also announced plans late last week to broaden restrictions on China's technology sector, although details remain light

In the U.S., a federal appeals court last week overturned a lower court ruling that revoked the Trump administration tariffs imposed under the International Emergency Economic Powers Act (IEEPA). For now, tariffs have been reinstated globally, but further hearings have been scheduled for next week. Ultimately the case could be tried in the Supreme Court, although there are alternatives the administration may consider for imposing much of its tariff policy if needed.

Our take: While the tariff tit-for-tat continues, the key takeaway is that uncertainty remains with us for now, and investors may need more patience before a stable trade policy regime is achieved. Perhaps we will get more clarity ahead of the July 9 end of the 90-day pause on Canadian and other trading partner tariff rates, as well as the August 12 end of the 90-day pause with China.

Thus far, U.S. and Canadian companies have been able to navigate tariff uncertainty and keep prices contained, perhaps as they have built inventories ahead of tariff-led price increases. We've seen this in recent inflation data in the U.S. and Canada as well. In the U.S., PCE inflation (the Fed's preferred inflation measure) came in at 2.1% year-over-year for April, below the forecast of 2.2% and inching closer to the Fed's 2.0% target¹. In Canada, headline CPI inflation for April was 1.7% year-over-year, below last month's 2.3% and in-line with the Bank of Canada's inflation target of 1% to 3%¹.

In our view, in the coming quarters we could see some increase in goods prices, as well as some softening in economic and earnings growth, as companies adjust to the higher-tariff regime.

However, peak tariff rates and peak fear are likely behind us, and assuming the administrations can negotiate deals, we should see better economic data heading into 2026, in our view. This could be supported by lower central bank rates and, in the U.S., a potential tax bill as well.

No “sell in May” this year - stay invested, stay diversified

The old Wall Street adage states, "Sell in May and go away." However, this year investors did just the opposite. We saw a nice bump in performance in May, with both the S&P 500 and Canadian TSX rising over 5%¹.

Historically, since 1980, there have been six times that the S&P 500 moved higher by 5% or more in May. In all six cases, the market was higher in the next 12 months following this move. Overall, while history may not repeat itself, it could certainly rhyme.

Volatility may create opportunities
Since the April 8 lows, the S&P 500 has climbed over 18%, and the Canadian TSX has climbed over 19% (in USD terms)¹. After a strong run, we could see volatility in the months ahead, as higher prices and slower growth could weigh on markets. However, as we look toward 2026, we see a potentially better setup: Economic growth may benefit from both monetary stimulus in the form of a modestly lower fed funds rate, and U.S. fiscal stimulus, in the form of an approved tax bill. 

In this backdrop, we continue to recommend that investors stay invested and stay diversified. We remain overweight U.S. large-cap and small- and mid-cap stocks, which could benefit from higher earnings growth next year. From a sector perspective, we recommend balancing technology and growth sectors with areas like financials and health care, which are less exposed to tariffs and should do well if economic growth re-accelerates, in our view. 

As we approach midyear, now is a good time to reach out to your financial advisor to help ensure your investments are on track to achieve your personal long-term financial goals. You can also work with your advisor to establish plans during periods of market volatility, to rebalance, diversify, or add quality investments at better prices.

Mona Mahajan
Investment Strategist

^{Source: 1. FactSet}

Weekly market stats

Source: FactSet, 5/30/2025. Bonds represented by the Bloomberg Canada Aggregate Bond Index. Past performance does not guarantee future results. *4-day performance ending on Thursday.

The Week Ahead

Important economic releases this week include the labour force survey and Bank of Canada interest rate decision.