Launch Pad

Markets are proving to be resilient to geopolitical shocks, with equities quickly rebounding from the Iran war and tariffs as investors adapt to a more fragmented and conflict-prone world. Rather than derailing markets, this new environment has created opportunities, particularly the acceleration of AI, digital infrastructure, and defense spending, which are driving earnings expectations higher even amid uncertainty. At the same time, rising geopolitical competition, especially between the U.S. and China, is pushing countries to localize technology and supply chains, further boosting demand for semiconductors, energy infrastructure, and cybersecurity. While fragmentation may increase costs and inefficiencies, it is also creating some new investment opportunities, especially in the tech and industrial sectors. 

Still spending. Retail sales in the U.S. rose a stronger-than-expected 1.7% in March, signaling resilient consumer spending despite rising inflation and geopolitical uncertainty. Gains were broad-based, with sales excluding autos up 1.9% and the closely watched control group used in GDP calculations, rising 0.7%, also beating expectations. Even when stripping out volatile categories like autos and gas, spending still grew 0.6%, suggesting underlying demand remains solid, at least for now. The data indicates consumers continued to spend ahead of the full impact of higher energy prices from the Iran war, though momentum may face pressure as those costs filter through. 

Mag 7, or just one? According to a Factset analysis, the “Magnificent 7” are still expected to lead earnings growth, with Q1 2026 growth of ~23% versus ~10% for the other 493 S&P 500 companies, extending a multi-quarter trend of outsized contribution. However, that leadership remains highly concentrated. NVIDIA is the dominant driver, and excluding it, Mag 7 earnings growth drops to ~6%, meaning the broader market (the other 493-something names) would actually be growing faster. The same pattern holds for full-year 2026, where headline growth for the group (~25%) falls to ~13% ex-NVIDIA, which is below the ~16% expected for the rest of the index. The takeaway is not just strong growth, but increasingly narrow leadership, with implications for both valuation support and market breadth. 

Goldilocks Principle? Tiff Macklem warned that the BoC must carefully balance its response to the oil-driven inflation shock, cautioning against raising interest rates either too early, risking further slowing an already weak economy, or too late, which could allow inflation to become entrenched. While he expects a noticeable jump in headline inflation due to higher gasoline prices, he still sees it remaining below 3% and believes the central bank can initially look through the energy-driven spike. Policymakers are focused on whether these higher costs spill over into broader, persistent inflation, particularly in core measures. 

The Iran war is beginning to shift inflation expectations higher in Canada, with surveys from the BoC showing firms now expect inflation to reach 3.8% over the next year, up from 3% prior to the conflict. More than 80% of households believe the war will harm the economy and push prices higher, reflecting a clear deterioration in sentiment. Businesses are already seeing rising input costs, particularly for fuel, freight, and fertilizers, but many are hesitant or unable to fully pass these increases on to consumers due to weak demand and competitive pressures. At the same time, consumers are adjusting behaviour, with a notable share delaying travel and major purchases as costs rise. 

So just how much more are those vacations? Airfares in Canada are rising for the first time in nearly two years, driven by a rise in jet fuel costs linked to the Iran war and disruptions to global oil supply. Prices increased 2.9% year-over-year in March and nearly 5% month-over-month, with some domestic routes seeing even bigger jumps as airlines pass on higher fuel expenses through ticket prices and added surcharges. While demand has remained relatively strong so far, higher fares are beginning to impact consumer behaviour, with some travelers delaying or canceling trips. Fuel costs remain the key pressure point, and even with a potential ceasefire, elevated energy prices are expected to continue into the peak summer travel season. 

Palm oil is trading at its biggest discount to soybean oil in more than two years, a gap that may help boost demand for the commodity in price-sensitive areas such as India. Soy oil has rallied this year, initially in anticipation of stronger demand due to higher U.S. biofuel quotas and an American trade deal with India, but also due to the Iran war which amplified gains as the energy crisis raised the appeal of alternative fuels. Palm oil, on the other hand, has declined this month on concerns about ample supply from Indonesia and Malaysia, and lower exports to major buyers. The spread between palm oil and soy rose to around $390 a ton in the previous session and was holding near that level on Tuesday, the widest since October 2023. That compares with an average gap of $99 ton last year.