Investors have continued to pour money into North American equities despite ongoing geopolitical tensions and fears surrounding inflation and interest rates. With the Toronto Stock Exchange (TSX) and S&P 500 both trading at record highs, strong first-quarter earnings and resilient economic data are helping fuel one of the strongest bull markets in recent years.
Why Is the Stock Market at Record Levels?
North American stocks are on an amazing run. The S&P 500 is at record levels, up 8.5% year to date and 31% on an annual basis. The TSX, meanwhile, is also trading at record levels, having rallied eight percent in 2026 and 35% on an annual basis.
The investor optimism and oversized gains have come on the heels of some pretty serious headwinds. This includes the war in Iran, soaring oil prices, fears of inflation, rising interest rates, and a potential recession. Stock valuations remain high and fears of an artificial intelligence bubble persist, too.
So, why are investors overlooking geopolitical and economic issues that would otherwise derail the stock market?
The answer lies in strong corporate earnings, widespread profit beats, and a resilient U.S. labour market.
A whopping 84% of S&P 500 companies have topped profit expectations in the first quarter. On top of that, 80% of those companies have reported revenue beats.
For the first quarter, the year-over-year earnings growth rate for the S&P 500 is 27.7%. Should this growth rate hold, it would be the highest earnings growth rate for the index since the fourth quarter of 2021 (32%).
On the revenue front, the year-over-year growth rate is 11.3%. That’s above both the five-year revenue growth rate of 8.7% and the 10-year average revenue growth rate of 6.3%. Should 11.3% be the actual first-quarter growth rate, it will be the highest tally for the index since the second quarter of 2022 (13.9%).
The strong first-quarter results come at a time when the U.S. economy is thriving. In April, the U.S. economy added 115,000 jobs. That’s far better than the 65,000 jobs economists were expecting, which suggests that the economy has avoided higher inflation being stoked by the Iran war. The big jobs data are being reported after the U.S. economy added a massive 178,000 jobs in March.
Are the Strong Stock Market Gains Too Good to Be True?
With the S&P 500 and TSX sitting at record highs, many investors may be asking whether they should jump into the stock market.
History shows that sitting on the sidelines, even when the two indices are at record levels, is a mistake. From 1982 to 2000, the stock markets generated annual returns of 20%. The current bull market began in earnest in 2009. Over the last 18 years, the S&P 500 has produced annual returns of 17% while the TSX has provided total returns (including reinvested dividends) of 13%.
Investors waiting for stocks to correct or for the perfect entry point have missed out on sizeable annual gains. Investors that took a conservative approach and piled their cash into mutual funds with high fees have been met with far weaker gains.
Even when facing headwinds that have resulted in both the S&P 500 and TSX experiencing major selloffs of at least 10%, it still makes sense to stay put. It can take years for investors who bought high and sold low to recover their losses.
Watching the TSX and S&P 500 high fresh record highs while you’re sitting on the sidelines can certainly be disheartening. But in a bull market that continues showing resilience, remaining completely on the sidelines could mean missing meaningful long-term opportunities.
The fact is that the indices hitting record levels is a good sign; at least it is when it’s accompanied by strong earnings.
Being fearful of investing when the TSX and S&P 500 are at record levels might mean you think there’s no more upside. But that isn’t the case of course. The current bull market continues generating double-digit annual gains, which means investors sitting on the sidelines risk missing out on significant portfolio growth.
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