MONTHLY MARKET MUSINGS

March 2025

Uncertainty Overshadows A Good Earnings Season

Despite the fact that fourth quarter earnings results have been mostly good, the markets struggled in February, giving back some of the early 2025 gains experienced in January. As of the time of this writing, 485 of the 500 companies in the S&P 500 Index (S&P) have reported. Of those, 74.3% have topped consensus estimates on earnings with the average earnings beat coming in 7.2% higher than consensus forecasts.[1] U.S. earnings growth is up an average of approximately 13.4% year-over-year in the most recent quarter across the companies in the S&P. For the S&P/TSX Composite Index (TSX), 165 out of 220 companies have reported with 59.6% having beaten consensus earnings estimates while another 8.1% reported results that were in-line with consensus. Canadian earnings growth is up an average of approximately 7.7% year-over-year in the most recent quarter across the companies in the TSX. Corporate results have been stronger in the U.S. when compared to Canada which mirrors the economic growth expectations for the next 12 months. In general, the results showed that despite the uncertainty in the markets, many companies have managed to continue to grow revenue and earnings, and this should help support further gains in the equity markets.

While the results point to a continued positive trend in North American businesses. The market spent much of the month looking for reasons to see the glass as half empty. This is likely somewhat due to the uncertainty regarding the tariff situation and the barrage of pessimistic headlines produced by media outlets which have negatively skewed the collective investor mindset. We saw several times this earnings season, high quality companies report strong numbers and solid guidance that beat analysts' expectations and yet the shares were weaker following the news. Generally, an analyst having to revise up their estimates based on strong results should produce a higher target price and thus send shares higher. But this quarter, in many cases, sentiment disassociated from the hard data and share prices were driven by noise and ambiguity. 

As we head into a new month, the tariffs will continue to be the topic of choice as the March deadlines loom. We continue to believe that the tariffs are being used more so as a negotiation tactic and that cooler heads will prevail with the knowledge that longer term permanent punitive tariffs are harmful to both Canadian and U.S. citizens. One thing that is certain is that volatility will remain high in the coming weeks as the trade discussions and negotiations take place. As we have noted in the past, altering the established investment strategy to avoid short-term fluctuations is nearly always a mistake and damaging to long-term gains. Investors need to look past the noise and see the forest for the trees to avoid getting too caught up in the short-term details of the current situation. The longer-term picture remains intact as U.S. economic data continues to look positive and the possibility of deregulation present strong equity market catalysts.

JAY SMITH, CIM®, FCSI

Senior Portfolio Manager & Senior Wealth Advisor    

jay.smith@cibc.ca

BRAD BROWN, MBA, CFA
Portfolio Manager & Associate Investment Advisor

brad.brown@cibc.com