War in Iran continues to raise uncertainty in markets as we approach Q1 earnings

April 2026 Insights & Strategies

The U.S./Israeli attacks on Iran, and subsequent retaliatory strikes by Iran against U.S. assets and other countries in the region quickly became the most impactful event of the month. It is unclear how this conflict ends, but base-case scenarios are typically factoring in 3-5 weeks of military operations. We should at least expect a short-term spike in energy prices, with the extent and longevity determined by the length or extension of operations, and if escalation leads to any significant damage to energy infrastructure in the region, or extreme actions, such as the mining of the Strait of Hormuz.
Canadian GDP contracted by 0.6%, q/q annualized, in Q4, following a 2.4% increase in Q3, although key components suggested a firmer economy. Headline numbers can be volatile, due to variations in imports/exports and inventory distortions driven in-part by tariffs. On an annual basis, real GDP grew by 1.7% in 2025, the slowest pace since 2020, yet a reasonably resilient outcome given elevated trade uncertainty and tariff-related risks throughout the year.
The latest U.S. data showed 92k job losses in February, following a surprisingly good 126k (revised from 130k) gain in January. The U.S. unemployment rate has thus ticked up from 4.3% to 4.4%. New Canadian employment data for February will be released March 13. Canada’s unemployment rate was last reported as 6.5% in January.

In March, the S&P/TSX Composite declined by 4.6% in price terms and 4.3% on a total return basis, bringing year-to-date returns to 3.3% and 4.0%, respectively. The S&P 500 posted price and total returns of -5.1% and -5.0%, respectively, leaving year-to-date performance at -4.6% and -4.4%.
WTI crude oil prices rose from approximately US$65/bbl to around US$101/bbl through March, representing a 51% increase. Since the onset of the Iran conflict, prices have surged by roughly 70%, reaching peak levels just prior to the announcement of a two-week ceasefire. Gold declined by over 10% during the month, but remained among the best-performing asset classes in 1Q26. Meanwhile, the U.S. dollar has strengthened sharply against major currencies, reflecting its safe-haven characteristics amid heightened geopolitical uncertainty.
Historical analysis suggests geopolitical conflicts tend to drive near-term volatility, but their impacts typically fade as markets absorb the initial shock. In more prolonged episodes, second-order effects, such as higher oil prices feeding into inflation and weighing on consumer spending, can filter into the macro backdrop. Ultimately, market direction remains anchored by macro fundamentals, corporate earnings, and pre-existing risks which have been temporarily overshadowed by the conflict.

The joint review of the USMCA, including the July 1 deadline to confirm if the agreement will be extended for 16 more years, or wound down over the next 10 years, will likely be the most consequential event for Canada this year. While we are optimistic of a reasonably good outcome for Canada, we are also braced for demands from the U.S. for adjustments related to rules of origin, digital services, and the dairy industry, to impact various sectors.
The striking down of IEEPA-based tariffs has forced the U.S. Administration to shift tactics, but not to abandon its goals of tariffs as a policy tool and to drive government revenues. This is leading to persistent uncertainty that keeps businesses from longer-term planning and investing. We will be watching ongoing revisions to the tariff strategy.
The Iran conflict is rapidly evolving, and despite the latest ceasefire, the war is not yet over, so we will be watching for both short-term and longer-term impacts to energy prices and broader economic impacts, depending on any further escalation and expected duration. Persistence in higher oil prices could stoke inflation concerns and push out the timeline for further Fed rate cuts, although the Fed seems to be willing to consider the energy price spike and resulting impact on inflation as transitory supply-side disruption that rising policy rates would have limited ability to influence.

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