We believe that global equities are set for another positive year of performance in 2026, with expectations for sector leadership to broaden and for earnings growth to be solid across regions. The U.S. remains the valuation outlier at approximately 22x forward earnings for the S&P 500 Index (“S&P 500”); this is supported by solid fundamentals, strong earnings revisions, and a constructive macroeconomic backdrop.

Overall, S&P 500 earnings are projected to grow about 13% next year (Exhibit 2). We expect U.S. equities to deliver returns in the 8% to 12% range in 2026, with six of 11 sectors anticipated to achieve double-digit EPS growth—signaling a broadening base of market strength. Investors should keep an eye on valuation risk, especially in high-multiple U.S. technology stocks, as well as potential volatility driven by geopolitics and sector rotation.

Canadian equities defied expectations in 2025, climbing a “never-ending wall of worry” and outperforming U.S. stocks, due to strong dividends, buybacks, and resilient banks. The Materials and Energy sectors provided stability, while attractive valuations drew income-focused investors. Looking ahead to 2026, the outlook is constructive: broader earnings growth, sustained shareholder returns, and supportive commodity trends should provide tailwinds, though risks remain from trade agreements, inflation, and global sentiment. With the S&P/TSX Composite Index trading at roughly 16.5x forward earnings and offering a 2.4% dividend yield, the market provides quality and steady cash generation. However, we believe investors should remain nimble amid ongoing uncertainties. We expect Canadian equities to deliver returns in the 7% to 10% range in 2026.

In 2025, developed international markets delivered mixed performance—Japan and South Korea outperformed peers thanks to governance reforms, while Europe lagged amid sluggish growth. Emerging Markets were led by technology-heavy indices, with China’s equity gains concentrated in technology and exports. For 2026, we remain cautiously optimistic: Japan and South Korea should maintain momentum, and EM could benefit if global conditions and the USD stay favourable. However, heavy Technology sector concentration makes EM performance highly sensitive to the global technology cycle and artificial intelligence (“AI”) sentiment.

Canadian universe bonds (Exhibit 3) delivered positive returns in 2025 as early BoC rate cuts supported fixed income markets. Government bonds generated a positive income return, though price weakness led to a slightly negative capital result. Investment grade corporates delivered steady, yield like returns, supported by strong demand and disciplined balance sheet management, while high yield bonds also benefited from healthy investor appetite and continued issuer deleveraging. Overall, fixed income provided stable, income driven results in an environment of moderating inflation and improving credit fundamentals.

For 2026, we expect more of the same: Canadian bonds should deliver steady returns in the 3 to 5% range, with the BoC likely on hold until late in the year. We are counting on stability from government bonds and healthy coupon flows from corporates, but are keeping an eye on inflation and supply risks. 

U.S. bonds rode a wave of volatility in 2025, but ultimately posted positive returns as the Fed signaled multiple rate cuts ahead. Government bonds and investment grade corporates delivered solid returns, while high yield rewarded those focused on quality and deleveraging. Looking to 2026, the outlook is constructive: Fed cuts and a steepening curve should support returns in the 5 to 7% range for U.S. bonds. High yield offers upside, but spreads are thin—so selectivity is key. We are monitoring Fed policy, fiscal trends, and the U.S. mid‑term elections for any surprises that could unsettle the market.

Globally, 2025 was a mixed bag. Japanese government bonds sold off as the central bank hiked rates, while European sovereigns lagged with flat or negative returns due to concerns around sovereign debt / fiscal deficits. EM debt offered higher yields but came with volatility. For 2026, global fixed income remains a game of careful selection: we will look for opportunities in high-quality sovereigns and corporates but be wary of liquidity constraints and policy divergence.

Commodities largely finished 2025 in positive territory, supported by robust global demand—though wheat and oil were notable laggards. Looking ahead to 2026, Commodities remain a key portfolio diversifier. Expect volatility, but also opportunity, as infrastructure buildouts and AI-driven reindustrialization continue to fuel demand for metals and energy.

Infrastructure was a star performer in 2025, delivering another double-digit year. We believe the secular bull market will continue into 2026, powered by massive investment in AI, renewables, and reindustrialization. Demand does not seem to be slowing down, and Infrastructure sector exposure remains key for yield and inflation protection.

The Real Estate sector delivered a positive surprise in 2025, as global markets turned the corner and U.S. assets led the way, attracting investors seeking yield and stability amid shifting macroeconomic conditions. In Canada, the sector began to recover, buoyed by major projects and fiscal stimulus, setting the stage for a more constructive 2026. While low single-digit returns are expected for the Canadian Real Estate sector, we believe momentum is building, and select opportunities are emerging as capital flows respond to renewed confidence. Across the U.S. and international markets, real estate continues to benefit from infrastructure investment and private capital, with global diversification offering upside potential and helping to smooth out regional volatility.

As we move into 2026, the outlook remains encouraging: real estate stands out as a resilient asset class, supported by secular trends in urban development, technology integration, and sustainability initiatives. We remain selective, focusing on quality assets and regions with strong fundamentals, but overall, in our view, the Real Estate sector is well-positioned to deliver steady gains and play a vital role in portfolio diversification as global conditions evolve.