All data and forecasts are as of November 15, 2025
Constructive outlook amid moderating gains
We remain optimistic on global economic and capital market prospects for 2026, supported by solid fundamentals in economic growth, earnings, and monetary and fiscal policy. Our base case anticipates returns across cash, bonds, equities and alternatives broadly in line with long-run averages. We expect moderating equity market performance given the starting point for valuations and exuberant sentiment in certain areas.
Economic backdrop: resilient growth
Despite tariff-related disruptions in 2025, global fundamentals held firm – a firmness we expect to carry on into 2026. We see conditions where global growth can surprise to the upside as deferred spending and investment resume. Fiscal stimulus remains a key driver, shifting from household transfers to industrial policies that bolster infrastructure, manufacturing and technology. The U.S. benefits from deregulation, tax cuts and productivity gains, while Europe and Japan see structural improvements and fiscal support.
Inflation, monetary and fiscal policy: manageable pressures, supportive conditions
Inflation is expected to stay slightly above central bank targets but within tolerable ranges, aided by soft labour markets and easing trade frictions. Tariff impacts are proving less severe than feared, with price adjustments spread over time. Central banks are positioned to maintain accommodative stances: the Fed is likely to cut rates toward 3.25–3.5% while the Bank of Canada holds near 2.25%. Loose financial conditions, combined with fiscal stimulus, create a favourable backdrop for risk assets.
Capital market implications
Cash returns should approximate inflation (2–3%). Canadian fixed income is expected to deliver 3–3.5%, aligned with current yields. Equities remain supported by percentage earnings growth expectations in the mid-teens globally. Valuation compression tempers price appreciation, resulting in high single-digit to low double-digit returns. Alternatives such as private equity, credit, real estate and infrastructure remain useful tools for diversification and return enhancement.
Strategic positioning: balanced and diversified
We maintain overweight positions in Canadian and U.S. equities and neutral weight in international and emerging markets. Within fixed income, we favour investment-grade corporate bonds and underweight lower-quality high yield bonds.
Risks and opportunities
While fundamentals remain supportive, elevated valuations and pockets of exuberance bear watching – particularly in gold stocks and AI-related sectors. We categorize equity opportunities into three themes: downsize (disciplined exposure to overheated segments); rightsize (maintain positions in sectors priced for continued earnings growth); and upsize (increase exposure to under-owned sectors poised to benefit from global growth).
Bottom line
The bull market is “middle-aged,” not overextended. Risks from overvaluation or policy missteps remain low for 2026. Globally, there is a powerful alignment of stimulative monetary and fiscal policy, combined with solid economic and earnings growth that supports further gains, albeit at a moderated pace. Our approach emphasizes diversification across geographies and asset classes, disciplined rebalancing, and prudent risk management to achieve our clients’ long-term financial goals.
S&P/TSX price target: 34,000 S&P 500 price target: 7,400
10-year bond yields: Canada = 3.5% 10-year bond yields: U.S. = 4%
Canadian dollar: C$1.35 or US$0.74
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