Investors are in paradoxical environment. Despite numerous global uncertainties- including geopolitical tensions, shifting tariffs, widening fiscal deficits, global rearmament, the uncertain payoff from substantial investments in artificial intelligence, and signs of slowing economic growth, equity markets continue to advance.
Some of these dynamics are generating growth opportunities within select industries. Heightened defense spending, for instance, is driving robust demand for defense contractors. Meanwhile, although the timing and scale of AI returns remain unclear, the ongoing multi-year capital investment cycle continues to fuel growth for companies involved in data center infrastructure, hyperscale computing, and energy generation to power these facilities.
Accommodative monetary and fiscal policies remain will help to stimulate growth in a slowing economy. In the U.S., the recently enacted One Big Beautiful Bill Act extended tax cuts for individuals and included pro-business measures including the immediate expensing of domestic capital expenditures and research & development. Canada is adopting a similarly pro-growth fiscal stance, as reflected in its budget proposal to increase defense spending and expand infrastructure investment.
The U.S. economy has continued to outperform expectations following the tariff announcements in April. This resilience reflects partial tariff reductions, delayed implementation, and effective corporate mitigation strategies. GDP expanded by 3.8% in the second quarter and is projected to rise 4.0% in the third. Although tariffs remain a potential drag on consumer sentiment and growth, the Federal Reserve’s decision to resume interest rate cuts in September, and the prospect of additional easing has helped stabilize market confidence.
The state of the economy remains critical, as it underpins corporate profit growth-the key driver of share prices. Second-quarter 2025 earnings per share (EPS) for S&P 500 companies exceeded expectations, rising 14% year-over-year. The third-quarter earnings season is now underway, with consensus forecasts calling for a 14% increase in EPS. For the full year, EPS are expected to grow 12% in 2025 and a further 14% in 2026. Given the strong market performance year-to-date, continued price gains will depend on whether growth expectations are achieved or exceeded.
We remain dedicated to building long-term wealth for our clients by maintaining a well-diversified portfolio of financially strong, well-managed, and reasonably valued companies.
