The Decibel - Making sense of a stock market that doesn’t make sense right now

Episode Date: May 12, 2026

From trade wars to the war in Iran, there has been a lot of geopolitical tension in the world. This can sometimes cause jitters on the stock market, but that hasn’t been the case as of late. In fact, the stock market has been thriving, even at a time when Canadians are feeling like there is an affordability crisis. Tim Shufelt is an investment reporter for The Globe. He’s been looking into what’s behind the booming bull market. He’s on the show today to talk about why investors seem so confident right now. Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Chaos, disorder, unrest. Those are some words you might use to describe the state of the world lately. Between trade wars and actual wars, there has been a lot of disruption. Usually this kind of instability gets people nervous, and those anxieties can often be seen in the stock market. Investors can get jittery. But not so much right now. In fact, currently the market is booming.

So how do you explain this? Well, Tim Schufeld is trying to. He's an investment reporter at the Globe. He's on the show to explain what's driving the current rally in the market despite the state of the world. I'm Cheryl Sutherland, and this is the decibel from the Globe and Mail. Hi, Tim, welcome to the show, your first time on. Yeah, thanks for having me on. The end of the pod.

Yeah, so it's really great to have you here. And you're here to talk about the stock market, which is something that we've don't cover that often, but what's going on right now is surprising, right? So we're going to get into it. How would you describe what's been happening? Well, the stock market has been on an incredible run. Any way you measure it. Some of the numbers last year, the S&P 500 index, which is the main U.S. benchmark of large-cap stocks, was up 18 percent, the year before that, up 25 percent, year before that, 26 percent. Just astonishing returns. Same for the TSX, too. Three consecutive years of double-digit gains. Last year alone was up 32%. And we can trace this back further than

the last few years, back to 2009, really, which is when this, they call it a bull market, which just basically describes a long-term up trend in the financial markets, got started. We've seen returns of 13% in TSX stocks annually over that time, 17% in the U.S., which is about as good as it gets. And that's unusual, right, to see the market have a rally that lasts 18 years? It's the These are called secular bull markets, and they can last up to 20 years or more. So you want to ride these out when they happen. They don't come on often. So you have stock markets just absolutely booming at the same time as they seem to have become disconnected from the real world.

A good example of this was one day last month, President Trump posted on truth social that he was going to wipe out a civilization, an entire civilization, die tonight. Yes. We all woke up to this, utterly terrified. And on that day, the S&P 500 actually went up. It was only a little bit, but the direction is what matters here. To a lot of people that just doesn't make a lot of sense that financial markets are booming at the same time as you have all of this real world madness, geopolitical and economic.

And that traces back further too. I mean, think about all that we've endured in the 2020s so far. Yeah, pandemic, for sure. Pandemic that killed millions. Collapsed the global supply chain. The worst inflation in a generation. The global trade framework breaks down. And now we have the worst energy disruption in history.

If I tell you all of that is going to happen, you know, in January 2020, you might be super urgent to sell any stocks that you might hold. But since the decade got started, the S&P 500 is up like 150%. And TSX is about the same. Yeah. So this is what's really interesting, right? It's like there are bad news happening in the world. And then it seems as though this is good news for the stock market. Let's look at Trump's threat against Iran as a specific example.

Why would the markets go up after Trump's threat? That does happen. The important thing to remember is the stock market is not the economy. The two things are completely separate entities. They're highly related. But one can veer away from the other for long periods of time. Now, in the case of that true social post, it's not like the markets saw that and thought, ah, that's some decent news.

We'll trade up stocks a little bit because of it. Stocks are taking their cues from other things mostly. And I think markets have learned to live with a lot of the chaos that has come about in this decade so far. Chaos seems to be the reality. It's like what's happening all the time, right? So that might be part of the reason why it's reflected in the markets. Yeah, it gets at what moves markets. And over the short term, on a day-to-day basis, financial markets are very noisy, very volatile places.

And the things that you see move a stock market on any given day is more about sentiment and emotion and the mood of investors collectively. And surprises. Surprises move the market a lot. Okay. I was going to ask you about what impacts the market. Generally speaking, what are the factors here? And so it sounds like mood, vibes. What else, though?

Well, surprises are a big thing when the market is caught off guard. So, you know, think back a little over a year ago, Liberation Day, when Trump was in the Rose Garden with his big board, unveiling these insane tariffs for nearly every country in the world. And so overnight duties on U.S. imports went from 2.5% to like 25%. And everybody freaked out because, you know, that's... That could very well just completely torpedo the global economy. So the S&P 500 declined by 12% over the next, I think, four trading days. Over the long term, that kind of reaction and investor sentiment, you know, the general tenor of the moment matters a lot less. And financial fundamentals start to take hold.

Zoom out over a period of years and everything starts to smooth out. You get this relatively well-behaved up trend. Line going up. Yeah. And that's when we see stocks increasingly take their cues from corporate earnings rather than how everybody is feeling about the economy. Okay, Tim, tell me more about this. How do earnings factor in here? So when you chart the U.S. stock market against earnings growth, when you put that one line on top of another, you see a very close relationship.

The stock market over a matter of years tends to track. how much money the companies within the index are making. And right now we're just in incredible earnings boom. Corporate America is making astonishing amounts of money, and that's been going on for several years now. We're in earnings season now, which is when all of the companies in the index report, it's their quarterly financials.

Q1. Q1. Yep. And S&P 500 earnings, so this is the total growth rate for all those 500 companies. companies in the index, it's up almost 30% year over year, which is an incredible level of growth. I was going to say that sounds pretty high. Yeah.

And this is really why stock markets have been on such a tear. If you want to boil it down to one singular dominant force, its earnings. Okay. What about in Canada? Because you mentioned corporate America, are Canadian companies also seeing huge profits? Yes. Somewhat surprisingly to some, Canada has been incredibly resilient on this front, too. There's this running joke that the Canadian economy is for oligopoly's in a trench coat.

And the same kind of goes for the stock market too. The U.S. is this behemoth with, you know, that is a completely diversified economy and stock market unto its own. The TSX is a lot different. Like our economy, it's heavily resource-based. And there are three sectors that really matter here. Financials, which is predominantly the big banks, energy. mostly the oil patch and materials, which mostly miners and increasingly gold miners. And so on all three, we've had a very good stretch.

The Canadian economy is held up pretty well in its own right. So Canadian earnings have held their own too. Okay. Canadian earnings holding their own American earnings very high. Let's talk about what's going on. Why are they so high? For a few years now, everybody has been expecting earnings to take a big hit. Right, for a whole bunch of different reasons.

Economists were predicting a recession that never came. And then all these tariffs, you know, tariffs raise the cost structure for corporate America, which should flow right through to the bottom line. And then the oil price shock. And energy costs are a basic input for all of these companies. So earnings should go down there too. And we just have not seen that happen. Again, in large part because the U.S. economy has held its ground.

That much anticipated recession never came about. And the American consumer just has never stopped spending. And that has allowed the corporate sector to pass the cost of increased tariffs through to the consumer through higher prices who have been able to absorb it so far. How much is a strength in the economy and by extension earnings on the stock market is a result of AI and all the investment in that sector? Yeah, it's a big part of it. The AI spend. The hyperscalers, you know, the Amazon's, Microsoft, Google, They're spending around 800 billion this year on the AI buildout.

This is mostly on data centers. There's an arms race in AI spending right now. Last year, that number was around 300 billion. Next year, it's supposed to go up to a trillion. And this is an ocean of money sloshing around the U.S. economy. It's boosting the bottom lines of all sorts of companies. There are some fears that it's circular, that these companies are essentially funding each other. But they are incredibly profitable right now.

And AI is definitely a big part of the earning story. How reliable are earnings as an indicator, especially since they are lagging, right? When we talk about Key One, that's January, February, March. And so that might not reflect the full impact of like the war in Iran, for example. Right. So quarterly earnings, they are backward looking. They still can move markets because every analyst that covers any given company will forecast what they expect those quarterly results to come in at.

And when a company surprises to the upside, that, is a market-moving event. But that's not the only thing that happens during earnings season when these companies have investor calls. They also update their guidance. And this is the thing that moves markets more than backward-looking earnings. We saw that with Shopify last week. They posted their first quarter earnings, which I think they beat analyst forecasts.

But then the company said its revenue growth is likely to slow, I think, from the 30s to the 20s in percentage terms. And so that stock immediately went down. around 15%. What if earnings are a bubble? What if these earnings aren't sustainable? When people talk about a stock market bubble, what they're typically referring to is a valuation bubble.

These are those episodes where investors kind of collectively lose their minds and start paying far too much for the stocks of what are typically exciting but unprofitable companies. The best example is is the dot. comb bubble. Valuations went through the roof. The whole thing eventually collapses in on itself. That's not what's happening here. Valuations are not crazy. They're high, but they're not stratospheric. And the thing that's keeping them from getting too high is earnings. That denominator, as the denominator rises and rises and rises, you can have a stock market continue to rise

without pushing valuations to dangerous levels. So the counterpoint, which I'm coming around to your question, is what if the earnings themselves are in a bubble? And it's a completely valid question. We get to those fears with the AI trade right now and all of the circular financing that we're seeing. If AI demand falters, that's a huge wildcard. And that is going to weigh on these companies,

which are growing very, very fast right now. But there isn't any signs of an earnings bubble right now. I mean, again, the three factors that I pointed to earlier. The economy is strong. The U.S. consumer is strong. And the U.S. corporate sector has record margins. And so they're able to maintain their profitability and push through extra expenses to the consumer. There could be an earnings bubble.

We would likely see signs of it happening before it would materialize. We'll be right back. On the U.S. consumer and the spending, right, because you're saying that like the U.S. consumer is just spending and spending, there is this perception that there is an affordability crisis and people don't have money to spend, right? So how can earnings be so high when people have this sense that the economy isn't doing well? Right. That is a big economic and policy question at the moment is people's feelings about the economy and how they too are a little bit detached from reality. In both Canada and the U.S., you see consumer sentiment levels at what we would normally associate with the recession.

Part of the answer is that, I mean, it's not contradictory for corporate profits to be high and the consumer to be pinched. What the consumer is spending on ends up in corporate coffers. That is corporate profits is what it's deriving from the consumer. While they do feel pinched, they are spending actively. And the reason they're able to do that can be traced back to the pandemic. And all of the fiscal support that policymakers put in place, the trillions of dollars that they unleashed to try to stave off a depression, a lot of that ended up in household bank accounts,

drove savings through the roof. Household wealth went up in Canada and the U.S., even as, you know, the economy shut down. The American consumer is drawing down on those savings now, using all those excess savings to maintain spending. So they don't like the prices, but they have the money and the household wealth to continue paying them. And they have.

So they're mad about it, but they're still buying. Yeah. And I'm assuming that some of the things that we are buying and that are higher prices, that we can't actually, we have to buy them, right? We're talking about food and fuel. The prices are high, but you have to buy them. Inflation has been concentrated in the essentials. And so this is a story, you know, when I say that people are largely better off.

I mean, we've seen, for the most part, on an aggregate level, wages keep pace with inflation. So even though people are feeling the pinch of inflation, on paper, the average consumer is better off. That's just not constant across the income levels and the impact of higher food costs and higher gasoline costs. That's not spread out equally throughout the economy. Okay, so we've established that corporate profits are beating expectations these days, and that's behind some of the momentum in the market. But I want to come back to the fact that the world feels really unstable right now. Tim, why aren't we seeing that risk reflected in the stock market?

It's a good question. There are some very smart people who think that the stock market is dangerously oblivious to real world risk right now. The line that you hear is that everybody's looking through it. From policymakers, Bank of Canada, that's their official policy is that they are looking through the oil price shock, the Fed 2. you could argue that the entire stock market is looking through it. And I think the reason is that it makes sense because episodes like this, oil price shocks like this, do tend to be short-lived. And so the expectation is still that this will all be unwound in short order, that everybody's just been kind of waiting for an all-clear. You know, a big jump in oil prices can be very destructive economically, financially.

But the crucial factor here is how long it lasts. You know, I've read some analysis that the oil price jump that we've seen would need to be in place for a year before it had a chance of kind of wrecking the global economy. RBC's research, they have put that range more at three to six months before we start to get into the danger zone. And we're getting pretty close to the three-month mark now. And there's been another breakdown in negotiations between the U.S. and Iran. And so that in that point, we probably might not see the stock market looking through at that point. At some point, looking through starts to look like a dangerous assumption to make about these markets. You know, a wave of inflation has been triggered.

We just don't know how big it is yet and how long it's going to last. And the longer that this goes on, it gets very hard to ignore. I think it's important to remember that the stock market isn't this infallible prediction machine. If you think back to early 2020, the scary headlines were starting to pile up a new virus was spreading. That was January 2020, and the TSX ended that month up by a percent and a half. The S&P 500 hit a new record like mid-February. So in the case of the pandemic, the stock market ignored it until it was impossible to ignore. And there is a bit of a history of financial markets, the stock market especially missing the shock in plain sight.

And so the fact that it is so willing to discount the risk of the oil shock, torpedoing the global economy or sparking this wave of inflation is worth considering. How much of this investor's belief in the market is based on the fact that Trump has responded to market pressures before? And this is like the taco, right? Trump always chickens out. Yeah. How does that factor in? Right. The financial market seemed to be the only guardrails that Donald Trump is willing to.

acknowledge and abide by. And so, yeah, there's absolutely something to it that the financial markets are seen to prevent him from going as far as he might with his policies and his crazy style of negotiation. You know, it happened with Liberation Day, some of his other big tariff moves, announcements around Iran, the market starts to freak out and he backs down. And so, you know, you could argue that that tendency is going to. keeping stock markets in check and keeping them from freaking out more. You know, I find it hard to believe that any other present threatening to wipe a country off

the map would be met with the same sort of stability in financial markets. Taco is definitely a thing. Okay. So, well, you kind of laid out here. War isn't bothering investors. Tariffs haven't seemed to have had an impact. Affordability concerns aren't slowing things down. So are there any flashing red lights that might indicate the stock market?

will dip. I mean, you could easily make a case that the blocking of the Strait of Hormuz is an economic shock that hasn't hit North America yet. U.S. crude is still near $100 a barrel. You know, you've got countries through the Asia Pacific rationing fuel and inflation estimates are rising everywhere. And we see the market pricing in rate hikes, both the Federal Reserve and the Bank of Canada. None of these things have phased the stock market.

But within the market, things are not... as calm as they might seem on the surface. In the U.S., AI is masking a lot of volatility in the rest of the market. We've seen the software sector crushed. But, you know, the magnificent seven stocks have been rising so fast that it has kept the index itself pretty tame. And something similar going on in Canada, too, booming profits for oil and gold. And the banks have massed over some very big moves and some other Canadian blue chips.

We've seen Brookfield Asset Management, Constellation Software, Shopify, they're all down from their 50-week highs by big, big numbers, 30, 40, 50%. So, yeah, there are big moves beneath the surface of the stock market, for sure. So ultimately, Tim, what should people with their retirement savings in the market make of the fact that the stock market is detached from people's views of the world and the economy? The stock market might not feel to the average person like it makes sense right now, given the state of the world. But I think an important lesson is that you don't really need to understand the market to participate in it. You know, this bull market, as I mentioned, tracks back to 2009. So we're in year 18 of this incredible uptrend that regular investors ought to take part in. It is one of the biggest mistakes in investing to let fear make you under-participate in the market like this.

The way to think about it is it may never get better in your lifetime, and you probably don't want to miss out on that. So it sounds like you don't think there will be a market correction anytime soon? I wouldn't say that. I think we've had either eight or nine sell-offs in the TSX of at least 10 percent since 2009. It happens all the time. We've had some bigger ones, obviously, the pandemic, for example. Sell-offs are like the price of admission to participate in the financial markets. By not panicking and selling into a market correction, it gives you the right to participate

in this long-term ascent of the stock markets. And also when a market is falling fast and it bottoms out, that turning point happens very quick. And you don't want to miss out on that. in 2020 after the pandemic market crash, the TSX was up by, I think, 20% in three days. And so you can think about it like the cost of not participating in the stock market is probably greater in the short term than any losses you might incur by investing at a market peak. Tim, great to have you on the show. Thank you so much.

Thanks a lot, Cheryl. That was Tim Schufeldt, an investment reporter for the globe. That's it for today. I'm Cheryl Sutherland. Our associate producer and intern is Cynthia Jimenez. Our producers are Madeline White, Rachel Levy McLaughlin and Mahal Stein. Our editor is David Crosby. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks for listening.