May 01, 2026

Key takeaways

• Markets are being driven by underlying fundamentals rather than headlines. The focus has shifted to earnings strength, rate dynamics, and long-term growth drivers.
• Equity markets have proven resilient, despite geopolitical uncertainty. April’s recovery has been led by key technology stocks in the US equity market.
• AI continues to shape returns, but selectivity is key. The opportunity remains compelling, though positioning is increasingly important as broad exposure becomes less effective.

April marked a shift in what is driving markets. While geopolitical developments in the Middle East continued to dominate headlines, their influence on market direction began to moderate. Investor focus shifted back to fundamentals—particularly earnings, interest rates, and structural growth themes such as Artificial Intelligence (AI).

AI strength outweighs oil tailwinds

Canadian equities entered the year in a position of relative strength, which provides important context for recent developments. Markets broadly declined in March as escalating tensions in the Middle East weighed on sentiment. In April, a fragile ceasefire helped stabilize conditions and supported a rebound in equities. At the same time, leadership shifted as AI-driven sectors led gains and United States (US) markets outperformed, while Canadian equities posted a more modest recovery despite higher oil prices.

Historical perspective

Markets have remained resilient despite the challenging backdrop. Historically, geopolitical conflicts create short-term volatility but rarely have a lasting impact unless they materially alter the economic outlook. 

To date, this pattern has held. In the two months since the start of the US-Iran conflict, the S&P 500 gained 4.3% through April 29. Earnings expectations remain stable and economic data — particularly in the US — continues to show resilience.

The key question is duration, and whether the conflict persists long enough to affect inflation or consumer demand. For now, markets are assuming a contained outcome, with central banks on hold.

Earnings are an anchor

Earnings continue to underpin market resilience. S&P 500 earnings are anticipated to grow approximately 18% in 2026, with expectations trending higher despite geopolitical uncertainty.

Technology is the primary driver, accounting for roughly 60% of total earnings growth. The largest technology companies — which now comprise roughly a quarter of the index — have driven a disproportionate share of recent returns, reinforcing US market leadership.

AI leadership re-emerges, with scrutiny

AI fundamentals remain strong, supported by a significant acceleration in infrastructure investment. Hyperscalers are expected to spend roughly $769 billion in 2026, supporting a multi-year expansion of AI infrastructure. Demand remains robust, but companies are still building the capacity needed to keep up, meaning growth is currently limited by how quickly that infrastructure can be scaled.

A large portion of future revenue is already locked in through customer commitments and contracts. At the same time, faster growth in cloud services across major platforms is making it easier to turn that demand into actual earnings. Importantly, margins have remained resilient despite elevated spending, indicating solid returns and pricing power for AI firms.

This backdrop points to a sustained investment cycle, with hyperscalers continuing to secure supply and invest heavily in areas such as custom silicon. While this strengthens their competitive position, it is also tightening availability across the broader ecosystem. At the same time, markets are becoming more sensitive to the scale of spending, as seen in the mixed reaction to results from companies like Meta, where higher capital expenditures have weighed on sentiment despite strong underlying performance.

Constructive but selective positioning

From a portfolio perspective, we remain constructive on the theme, but have become more selective about where we invest. In our global large-cap growth strategy, we have reduced exposure to some of the largest hyperscalers as positioning has become more concentrated, and we have increased allocations to AI infrastructure, including semiconductors and power. Within this, we have broadened exposure beyond Graphics Processing Unit (GPUs) suppliers, reflecting emerging capacity constraints in areas such as memory and processing. While returns have been strong, we remain mindful of elevated valuations and the potential for oversupply if demand moderates.

Fundamentals are in focus, but risks remain

Markets have become increasingly reliant on a small number of drivers — mainly AI-led earnings growth in the US. While fundamentals remain supportive, this concentration raises the stakes.

At the same time, oil markets suggest disruptions could last longer than expected, and elevated valuations of technology stocks leave less room for disappointment. The key risk is not the presence of volatility, but a shift in the underlying drivers—whether through weaker earnings delivery or more persistent inflation.

For now, the backdrop remains generally positive, but outcomes are increasingly tied to where capital is invested. This reinforces the need for selectivity, diversification, and a clear focus on companies with steady, reliable earnings.

This material, including any attachments, is provided for informational purposes only and is not intended as investment, legal, accounting, or tax advice. It has been prepared without regard to individual financial circumstances or objectives, and readers should consult independent professionals, as applicable. All views, opinions, estimates and projections contained in this material constitute Connor, Clark & Lunn Private Capital Ltd. (“CC&L Private Capital”)’s judgment as of the date of publication and are subject to change without notice. Certain information contained herein is based on information obtained from third-party sources that CC&L Private Capital considers to be reliable. Past performance is not indicative of future results, future returns are not guaranteed, and loss of capital may occur. This material is intended for the use of the recipient only and no matter contained herein may be separately used, disseminated, distributed, reproduced or copied by any means, in whole or in part without express prior written of CC&L Private Capital. This is not an offer to sell or a solicitation to buy any securities and should not be construed as a sales communication.