Chutzpah, Whipsaw, Seesaw!

The North American markets witnessed tumultuous month of March as the war in middle east kept investors on the edge. The S&P 500 Index dropped about -7.80% and S&P TSX dropped about -8.80% from the start of war on February end to their respective troughs in late March before swiftly recovering almost entire losses by mid-April. While it is still early to say the hostilities between the warring parties are over, equity market investors are expecting a probable deal sometime soon as apparent from the market price action since the start of April. Apart from the whipsaw price action over the course of past few weeks, the investors also had to navigate the seesaw between narratives of major escalation to renewed hopes of a truce from day-to-day.

US and Iran agreed to a two-week ceasefire on April 7th and have held a round of negotiations in Pakistan, which yielded no results. United States and Israel continued to claim major victory and decimation of Iran’s leadership and military capabilities throughout the period, and yet Iran continued to successfully block the traffic through Strait of Hormuz and launch missiles on infrastructure of United States and Israels’ allies in the region. Given both sides have something they can claim as a victory at the current juncture, any further concessions would need to avoid the optics of an outcome that looks like a defeat, in our view. The element of chutzpah in demands from both sides could arguably make it difficult for the other side to accept without giving an appearance of an apparent defeat. Iran’s demands of seeking sovereignty over the Strait of Hormuz, charge ~$2 million transit fee per ship and complete withdrawal of US forces from the region could be a difficult concession for the United States to make and United States’ demand of complete cessation of Iran’s nuclear program appears like a difficult concession for Iran to make.

Nevertheless, since both sides have shown restraint in the last few days and have shown willingness to hold further talks, the chances of coming to a common ground have increased. Markets have recovered on the prospects of a potential truce even though it remains on fragile grounds at present, in our opinion. We think the resilience of equity markets is underpinned by strong earnings growth expectations. As per Bloomberg data, the year-over-year earnings growth expectations for S&P 500 Index increased from ~+13.8% at the start of the year to ~+17.0%, and for S&P TSX Index increased from ~+16.0% to ~+22.0% at present. The improvement in earnings growth expectations is driven by

Information Technology, Materials and Energy sectors on both sides of the border with highest growth expected in Information Technology sector in the S&P 500 Index (See Figure 1) and in Materials Sector in S&P TSX Index (See Figure 2).

Figure 1. S&P 500 Index - Earnings Growth Expectations by Sectors, year-over-year, %age

Sept 14, 2025 to April 14, 2026

Source: Bloomberg

Figure 2. S&P TSX Index - Earnings Growth Expectations by Sectors, year-over-year, %age

Sept 14, 2025 to April 14, 2026

We think the balance of economic data has remained constructive for now, however, subject to the extent and duration of disruption in the middle east, it could begin to show signs of stress building in the economy in the coming months. In the United States, the headline Consumer Prices Index (CPI) increased from +2.4% in February to +3.3% in March driven by higher gas prices, while core CPI increase was more modest at +2.6% in March +2.5% in February. The headline CPI in Canada was at +1.80% for February and is expected at +2.50% for March. The jump in the US core inflation is more modest as compared to the headline inflation as it excludes more volatile food and energy prices. While the higher energy prices have not translated into sustained core inflationary pressures yet, we think the crude oil prices are unlikely to swiftly fall back to pre-war levels given damage to energy

infrastructure in the middle east and therefore core inflation might also start picking up in the coming months.

Overall, we think the prospects of de-escalation in the middle east and improving earnings growth story of the North American corporates is a constructive backdrop for risk assets in the near-term. That said, should the economic data start to soften either due to a prolonged conflict or delayed spillover effects of disruption already caused, the markets might witness more episodes of volatility along the way. For now, we continue to advocate a pro-risk stance with an eye on the direction of conflict in the middle east and any potential softening of the incoming economic data.

Source: Bloomberg

Vipul Arora is a Portfolio Manager with CI Assante Wealth Management Ltd. The opinions

expressed are those of the author and not necessarily those of CI Assante Wealth

Management Ltd. Please contact him at 613-258-1997 or visit ofarrellwealth.com to discuss

your circumstances prior to acting on the information above. CI Assante Wealth Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc