Investors need to look past geopolitics to corporate fundamentals

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The year has begun with heightened geopolitical activity, led by U.S. actions in Venezuela alongside renewed tensions involving Iran and Greenland.

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In Venezuela, the removal of President Nicolás Maduro and the possibility of U.S. involvement in rebuilding the country’s oil sector have revived expectations that production — currently near 1 million barrels per day — could rise over time.

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However, decades of underinvestment, infrastructure decay, corruption, and political instability suggest that any supply recovery would be slow, costly, and complex.

For Canada, the longer-term risk is competition from Venezuelan crude for U.S. refiners, which rely heavily on Canadian supply. That said, Canada benefits from an entrenched pipeline network into the U.S. and improved export optionality following the Trans Mountain Pipeline expansion to the west coast, both of which should help preserve market share.

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Canadian energy equities initially reacted negatively to developments in Venezuela, reflecting concerns that U.S. refiners could substitute Venezuelan barrels for Canadian crude, potentially widening the Western Canadian Select – West Texas Intermediate differential (the price spread between Canadian heavy oil and the U.S. benchmark) which would create a headwind for Canadian producers.

This market response may be underappreciating the significant time and capital required to materially lift Venezuelan production, as well as Canada’s improved export infrastructure.

Elsewhere, the U.S. administration has warned Iran about civilian harm in the regime’s suppression of widespread domestic protests and reasserted its desire to “acquire” Greenland.

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While these events underscore persistent geopolitical uncertainty that may bring episodes of market volatility, the broader lesson from recent years has been the importance of maintaining perspective — avoiding overreaction to headlines and focusing instead on economic fundamentals and corporate earnings trends.

Corporate fundamentals remain constructive. Forward earnings expectations across major markets continue to trend upwards, and the U.S. Q4 2025 earnings season began this week, with analysts expecting high-single-digit earnings growth for the S&P 500 Index.

More broadly, after approximately 12 per cent global earnings growth in 2025, consensus expectations point to a further 14 per cent increase in 2026.

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While a good deal of economic and earnings optimism may already be reflected in valuations — which remain above long-term averages and can thus leave markets more sensitive to negative surprises — consistent earnings delivery can help support elevated multiples. In this context, profit trends remain a key foundation for equity markets to extend their advance.

In Canada, recent labour market data, notably the stabilization seen in trade-exposed sectors, could allow the Bank of Canada to remain patient.

In the U.S., markets are currently anticipating roughly 50 basis points of rate cuts over the next 12 months. However, uncertainty surrounding the legal status of certain tariffs continues to cloud the economic outlook and pose a challenge for Federal Reserve. policy-makers.

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The bottom line is while geopolitical developments and policy uncertainty may drive intermittent volatility, corporate earnings and underlying economic fundamentals remain the primary drivers of equity markets. These factors continue to look supportive in the quarters ahead, however the elevated chance of U.S. policy mistakes, mean investors must be watchful while maintaining an equal weight to equities for the time being.

Mike Candeloro, Senior Portfolio Manager and Wealth Advisor with RBC Dominion Securities and the head of The Mike Candeloro Wealth Management Group supplied this article. RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities, which are affiliated. Member CIPF. Mike can be reached at Michael.candeloro@rbc.com You can also visit his website at www.michaelcandeloro.com To read Mike’s archived articles please visit Mike Candeloro / Special to The Nugget | North Bay Nugget

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