May 2, 2025

 

As we wrap up April and begin May, I wanted to take a moment to reflect on recent market activity and revisit one of the core principles of our investment philosophy: corporate earnings are among the most important drivers of long-term market returns. While they aren’t the only factor, they’re one of the most reliable indicators of the market’s underlying health.

 

As I mentioned in our March 10th update, we believed earnings remained strong—and that was confirmed. Q4 turned out to be the second-strongest quarter since 2021. With that kind of backdrop, it’s difficult to justify fears of an imminent recession or market collapse, even amid heightened rhetoric.

 

Of course, the past few months weren’t without surprises. An exogenous factor—the resurgence of trade tariffs at higher levels—re-entered the picture, creating volatility and raising concerns about potential structural impacts on earnings. But for now, strong corporate results have continued to shine through, and at time of writing, 70% of companies in the S&P 500 have beat their consensus earnings, helping drive a notable rebound in the index over the past few weeks.

 

This month was a clear example of how quickly market sentiment can shift. At one point, the S&P 500 dropped over 11% in just eight trading days—understandably unnerving many investors. Yet by month-end, the index was down just 0.8% and the Dow was down 3.2%. What changed? Certainly not the headlines.

 

Despite ongoing political noise—interest rate debates, global tensions, and tariff uncertainty—it was the strength of corporate earnings that helped steady the market. Many companies have so far delivered solid Q1 results, demonstrating resilience through continued revenue growth and improving profitability.

 

This is exactly why we focus on businesses, not headlines. Markets are not powered by daily news cycles or short-term political developments. They are driven by the long-term success of real companies solving real problems and generating real profits. That’s why we invest in businesses with a consistent track record of earnings growth—not just those that can weather storms, but those that can thrive beyond them.

 

That said, we feel we aren’t out of the woods yet. There’s still important data to come from both the U.S. and Canadian economies. Tariff disputes aren’t resolved—they’re simply on pause—and we could see a return to the volatility cycle we’ve been experiencing. Eventually this could start to erode those strong corporate earnings and we will be mindful of that.

 

Volatility is part of investing. Whether driven by tariffs or something else, it does not alter our long-term strategy. Staying disciplined during these periods has historically been one of the most effective ways to build wealth.

 

Here are a few key takeaways from April that we at the Intrinsic Financial Group will carry with us as we move forward:

• The market found its “strike price.” It’s now been 11 weeks since the “Tariff Tantrum” began. We’ve seen two instances where the administration had to walk back from more extreme actions. These walk backs came when markets hit a clear pain point—suggesting there is still a policy “put” in place. This means a point where the government will shift policy to benefit the markets. As you can see in the below we are still within this long term cyclical bull market band despite spending time below the 200 day average.

• S&P 500 price action reflected the above. A 20% drawdown led to de-escalation. The market quickly rebounded from -20% to -5%, stabilizing around what appears to be a scenario it can digest: 10% tariffs.
• Bond markets also hit a limit. When long-dated Treasuries briefly hit 5%, the Treasury Department intervened. It seems that US Secretary Bessent’s voice is carrying weight in the room—and for now, cooler heads have prevailed.

This is potentially good news. It suggests that there are circuit breakers in both equity and bond markets that can curb more extreme moves. While we can’t predict every headline, we can prepare by investing in resilient, well-run companies with the ability to grow earnings over time. The data we were able to extract during April showed us the US government’s cards so to speak, and it will help us going forward to keep with our investment strategies and be cognizant of when we need to put more money to work. At this point in my career, I’m tracking roughly 38,000 hours staring at a stock market screen. In that time you do learn a lot about the value of companies, how equities trade during headline noise and how we can be effective during volatile periods such as we’ve seen.

 

Always remember the market prefers certainly over uncertainty and “less bad” over bad as we like to say. The former are both things that we hope to see in the next few months. We now have clarity on the elections in Canada, we still have strong corporate earnings and we have a US administration that we now know are not willing to push the markets – stock and bond – too far.