This Week in Review | Iran Conflict Update, Canada Election, UK GDP

Transcript

Rachel Green

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, and what they may mean for markets and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, an update on the US and Iran.

This past weekend, US Vice President JD Vance met with Iranian representatives in Pakistan to negotiate a peace deal. The discussions ended without a formal agreement. So for now, the conditional two-week ceasefire President Trump previously announced on April 7th is still what's maintaining the lull in fighting. After last weekend's talks ended without a resolution on Sunday, President Trump announced a US naval blockade of the Strait of Hormuz and Iranian ports. On Monday, stocks seemed unfazed by the announcement, finishing the day up and rallying to new highs during the week. Then on Thursday, President Trump announced a ten-day cease-fire between Israel and Lebanon. And in response, Iran's foreign minister said the Strait of Hormuz is open. However, given the absence of a negotiated peace deal and a continued US naval blockade, some investors may be surprised at the market's resilience in regaining record highs. This begs the question—what do stocks know that many can't seem to fathom? Market movement is not exclusively determined by what's going on right now in current events. Rather, stocks are focused on broader trends and expectations of what's likely to occur over the next 3 to 30 months. Markets weigh the myriad of economic, political and sentiment factors expected to shape demand for stocks within this time window. While the human cost of war is tragic, markets are cold and calculated. Stocks care less about a renewed cease-fire agreement or a blockade of Iranian ports, and more about whether corporate fundamentals remain intact for the months ahead. And to us, key metrics like healthy corporate earnings growth, expansionary purchasing managers indexes and a steep global yield curve remains supportive of a continued bull market. And even if more market volatility arises ahead, just think back to the stock market's round trip over the last month and a half. It's a timely reminder to remain patient and resist the urge to react to big daily market moves. We think staying focused and disciplined to your long-term investment strategy is a time-tested recipe for success.

Next, Canada's election.

On Monday, Canada held federal byelections in three electoral districts to fill vacant seats in the Canadian House of Commons. Prime Minister Mark Carney's Liberal Party won all three seats, now giving the ruling government a parliamentary majority. This is Prime Minister Carney's first majority since starting to govern last spring and Canada's first majority government since 2019. This means the Liberal Party can pass legislation without needing the support of opposition parties in parliament, which could loosen political gridlock and raise legislative risks for Canadian stocks. Political gridlock, while frustrating for voters, is a bullish and positive force for stocks in our view, reducing the risk of sweeping or controversial policy changes or new regulations. This creates a more predictable operating environment for businesses to grow and invest. However, we're not convinced Canadian political gridlock will completely fade. The Liberal Party's razor thin majority means that just 1 or 2 Liberal members of Parliament could stall or force changes to legislation if they choose to object. Internal policy disagreements within the Liberal Party on topics such as climate and fiscal policy, raise the possibility of this scenario. Any potential infighting and extended public debate over potential legislative shifts also gives businesses and markets time to adjust and prepare, which can help lessen the impact of eventual legislative changes might have. For markets, a Liberal majority was widely anticipated going into these byelections, so this election result isn't much of a surprise. Additionally, Canadian stocks only make up about 3% of developed world equity markets, so a globally diversified investment portfolio shouldn't be overly influenced by Canadian politics one way or the other.

Finally, a UK economic update.

On Thursday, the UK released February GDP data. February's report showed a 0.5% increase from the prior month and exceeded analyst expectations. This follows the UK economy stalling in January, which caused worry among some investors at the time. Monthly UK GDP figures haven't been consistently positive, but this didn't prevent the UK economy from growing in every quarter over the last two years. Other UK economic data, such as purchasing manager indexes, have remained expansionary in recent months. Investors can easily overreact to positively or negatively surprising GDP reports, but we don't think investors should overanalyze these backward-looking figures. Put simply, GDP readings reflect what has already happened in the past. Stocks, on the other hand, are forward looking and focused more on the future economic outlook. Additionally, history shows us robust economic growth is not a requirement for positive stock returns. Stocks simply need conditions to surpass expectations. 2025 serves as a prime example. Global stocks delivered over 20% growth despite frequently sluggish GDP figures. Stock performance ultimately hinges on the gap between investor expectations and reality. February's positively surprising GDP reading illustrates how economic fundamentals can end up much better than feared when expectations are low. While the UK economy certainly faces domestic challenges, stocks only need slightly better than expected reality to continue their upward trend, something we expect for the UK and global stocks as this year progresses.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more of our insights, then don't miss our other series Three Things You Need To Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit "like" and "subscribe".