Quality earnings, cautious CEOs

Why are CEOs cautious when earnings continue to hold up?

Market recap

• Equity markets pushed higher this week as earnings results continued to handily top expectations.
• The S&P 500 rose 3.6% to a new record high, led by technology.
• Meantime, the TSX continues to push record territory as well, adding 3.3% this week on massive rallies in materials and tech.

Earnings

Q2 earnings have continued to come in strong and largely align with what we expected coming into the year. At the time, we were constructive on the fundamentals—earnings growth, capital spending and overall business momentum all looked supportive, and that’s largely played out.

However, the market reaction has been more mixed, with some signs of caution lingering on the business front. A survey of U.S. CEOs shows that only 52% are confident about the direction of the economy, down from 59% at the start of the year.¹ In our view, part of that comes down to the fact that the bar was set very high early in 2026, and it felt like companies were largely delivering in line with expectations. Over time, though, the market has become much more selective—rewarding companies that outperform and provide confidence around the path ahead, while punishing those that fall short. In addition, there was the added complexity of the closure of the Strait of Hormuz and the implications surrounding it. That explains, in part, why CEO sentiment remains soft. However, we don’t think it’s necessarily a sign that businesses are struggling today; it’s more about navigating a landscape with a lot of moving pieces—tariffs, geopolitics, interest rates and broader policy uncertainty. All of that creates questions around how easy it will be to sustain growth going forward. Ultimately, we remain constructive on equities. We increased our equity exposure after the recent market pullback because we saw it as an opportunity to add to positions. With earnings holding up, AI investment starting to translate into real business value, and consumers remaining resilient, we think there is still room for this cycle to run.

Bottom line: While earnings continue to validate our constructive view on fundamentals, the market is becoming more selective as investors weigh strong performance against uncertainty around future growth.

Trade

The “sell America” narrative has re-emerged, particularly in areas like rates and currencies, but we don’t think we’re at the point of a broader shift away from U.S. assets. U.S. equities have continued to hold up well, supported by a strong earnings backdrop, and we think that still matters from a fundamental perspective. That said, we are seeing some investors look to add more international exposure, but we view that more as a diversification story rather than a strong conviction that international markets are set to outperform the U.S. That could change, though, if tariff concerns pick up again or uncertainty around U.S. policy increases, further intensifying the pressure for investors to diversify. Within international markets, we’re still more selective from a regional perspective. We think the periphery looks better than the core, as some of the larger developed markets continue to struggle to find momentum. Japan is one market we’re watching closely, given the historic currency intervention and any opportunities or uncertainties that will arise as a result. From a sector perspective, there are areas within international markets that look interesting, including Financials and potentially Defense. But we’re not seeing enough to take a more aggressive view at this point.

Bottom line: The “sell America” narrative has resurfaced, but we view current international interest more as diversification than a fundamental shift away from U.S. assets.

Private markets

There is still some negative noise around private credit, although we believe it has become quieter compared to a few months ago. The important point is that we haven’t seen this turn into broader market stress or meaningful contagion. It is certainly impacting some of the companies that are directly involved, but for larger financial institutions where it is a smaller part of the overall business, the impact has been much more limited. Overall, we think the pullback in valuations is starting to create opportunities in private credit. Like any asset class, investors have to ask what they’re being paid to take on the risk. The key question today is: are you getting good value for these assets? We think you are. Has all the dust settled? Probably not. There may still be some issues to work through, but from a longer-term perspective, we think investors can certainly find opportunities that fairly reward their capital. When it comes to accessing the space, evergreen solutions can be a useful way to gain exposure while maintaining some flexibility and optionality. At the same time, investors still need to understand the liquidity terms—particularly during periods of market stress. Ultimately, we don’t think private credit concerns are a reason to take risk off the table. We think the smart investor is looking through the noise and looking for opportunities, particularly where valuations have become more attractive.

Bottom line: While private credit is still facing some pressure, we don’t see broader contagion—and the pullback in valuations may be creating opportunities for long-term investors.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Risk-on, radar up: a constructive setup, but still cautious outlook .

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Originally Posted August 10, 2026 – Quality earnings, cautious CEOs