TD Wealth Perspectives Newsletter: Winter 2026

Neal Brandon, CFA

Senior Investment Strategist, TD Wealth Chief Investment Office

If 2025 taught investors anything, it’s that life is what happens when you’re busy making other plans. At the start of the year, markets were full of confident forecasts: smooth disinflation, neatly timed interest rate cuts, steady growth, and technology continuing its orderly rise. What unfolded instead was a year shaped less by spreadsheets and more by surprises.

Stock markets proved resilient, but not in the way many expected. Rather than a steady advance, performance was uneven. Some sectors thrived on innovation and adaptability, while others struggled with shifting consumer behavior and financial conditions. Bursts of optimism were often interrupted by volatility, reminding investors how quickly narratives can change.

Fixed income spent much of the year recalibrating expectations. Hopes for quick and predictable policy shifts were met with stubborn economic realities. While inflation eased in some areas, it was a cooling labor market that ultimately prompted the Federal Reserve to act. As a result, bond yields moved in fits and starts, rewarding patience more than prediction.

The past year also helped to highlight how interconnected the global system remains. Political developments, supply chain adjustments, and regional growth differences created sharp contrasts between markets. Capital chased areas of perceived stability, then reversed as conditions changed.

Ultimately, 2025 reinforced a timeless lesson: markets don’t move according to our calendars or predictions. In financial markets, success often comes not from perfectly forecasting the future, but from being prepared when the future doesn’t follow the script.

In this edition of Perspectives, the TD Wealth Asset Allocation Committee takes stock of the key market developments that defined 2025, along with perspective on the global economic environment investors may face in the year ahead.

Also contributing to the newsletter, TD Wealth Strategist, Ashley Weeks, highlights the benefits and importance of beneficiary designations, exploring the planning, legal, and tax considerations that can help ensure wealth is passed on according to intensions. 

As we move further into the year, we believe a steady focus on fundamentals, paired with thoughtful preparation, can help investors remain well positioned regardless of the market environment ahead.

Major Market Index Returns (Based in USD)

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 by 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 earnings per share (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.

Exhibit 2: S&P 500 Index Annual Earnings Growth

U.S. bonds rode a wave of volatility in 2025 but ultimately posted positive returns as the Fed signaled multiple rate cuts ahead. Treasuries 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 bond returns in the 5 to 7% range. High yield offers upside, but spreads are thin—so selectivity is key. We are monitoring Fed policy, fiscal trends, and the mid‑term elections for any surprises that could unsettle the market.

Opportunities

• Central bank easing could spark capital gains, especially in Treasuries and long end of the curve.
• High-quality short-term bonds offer attractive yields, flexibility, and a defensive posture in uncertain markets.
• Corporate deleveraging, robust coupon flows and deregulation may keep credit spreads and total returns healthy, especially in high yield and investment grade bonds.

Potential Risks

• A resurgence in inflation could force repricing, hurting duration and real returns across the curve.
• Large new issuance, mergers and acquisitions activity or technical supply shocks could pressure spreads, and test market liquidity.
• Policy uncertainty — Fed leadership changes, trade policy shifts, or unexpected macroeconomic events — may drive volatility and challenge even the most defensive positioning.

Sub-Asset Class

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. Gold and copper stand to benefit from their roles as inflation hedges amid supply-demand imbalances and increased investor interest in real assets. At the same time, commodity prices may also swing sharply in response to shifts in global growth, policy developments, or supply shocks, impacting both returns and portfolio correlations. 

The Dollar is expected to weaken in 2026, driven by overvaluation against major currencies and anticipated Fed rate cuts that will erode U.S. yield advantages. A shift away from U.S. exceptionalism and less intense trade tensions may further erode the U.S. Dollar's premium. Investors may need to prepare for a softer dollar, which can impact returns on international assets.

Opportunities

• International equity exposure may benefit from USD weakness.
• Global real assets could see improved currency translation.

Potential Risks

• Fed policy surprises could stabilize or strengthen the Dollar.
• Renewed trade tensions or market stress could trigger safe-haven demand.
• Over-hedging foreign exposures could limit foreign exchange gains.

Cash can serve a practical role while investors wait for clearer signals from labor markets, inflation developments, and central bank policy decisions. It also offers flexibility and some protection during periods of market volatility, allowing investors to respond as conditions evolve. In an environment defined by tight spreads and policy uncertainty, cash functions as both a stabilizing tool and a reserve that can be allocated when opportunities become more apparent.

Opportunities

• Higher yields on cash and short-term instruments offer safe returns and optionality, allowing investors to stay nimble.
• Flexibility to redeploy into risk assets as valuations shift or dislocations emerge.
• Acts as a hedge against market drawdowns and liquidity shocks, preserving capital and buying power.

Potential Risks

• Opportunity cost if equities or credit rally and cash stays sidelined, missing out on upside.
• Inflation could erode real returns, especially if price pressures persist or accelerate.
• Policy or regulatory changes may impact money market yields or access, requiring active management and monitoring.

Ashley W. Weeks

Vice President, Wealth Strategist
 

Why IRA Beneficiary Designations Are Crucial

One of the most unique and consequential aspects of retirement account planning is the beneficiary designation form, where an account owner records who should inherit the retirement account at the owner's death.   While the process of updating a beneficiary designation form is deceptively simple, failing to understand the planning, legal and tax implications of this designation form can result in unintended consequences. 

The first thing to acknowledge is that a beneficiary designation is not governed by the terms of a Last Will and Testament.  Assuming an IRA account owner validly designates another individual as the beneficiary, the IRA will pass to that surviving beneficiary even if the owner's Last Will and Testament has contrary provisions.  A commonly held misconception is that choosing not to designate a beneficiary guarantees the IRA will pass to the owner's estate and be distributed based on the Last Will and Testament. 

When an IRA owner dies without designating a beneficiary (or if the designated beneficiaries are all predeceased) the "default" beneficiary provisions of the IRA custodian's beneficiary designation form will stipulate who the default IRA beneficiaries will be.  Unfortunately, IRA custodians do not uniformly apply the same rules for default beneficiaries, in some instances the owner's estate may be the default taker, but often the deceased owner's spouse or children are given priority.  To avoid any ambiguity, IRA owners should understand the default provisions in their IRA 'designation of beneficiary' form and diligently maintain updated beneficiary designations with the IRA custodian.

The beneficiary designation has important tax implications.

When a pre-tax Traditional IRA is inherited, withdrawals from the inherited Traditional IRA will be taxable as ordinary income to the beneficiary.  While inherited Roth IRAs will not be taxable to the beneficiary, both Roth and Traditional inherited IRAs are subject to mandatory distributions rules.  Perhaps the most complicated part of administering an inherited IRA is determining when a beneficiary must withdraw the inherited funds.

Designating a backup or contingent beneficiary allows for flexibility.  

IRA custodians have evolved their beneficiary designation forms to allow greater flexibility.  In addition to identifying the primary beneficiaries, IRA owners are usually permitted to also designate contingent beneficiaries who will inherit the IRA if there are no available primary beneficiaries. Typically, contingent beneficiaries only inherit if all primary beneficiaries are predeceased.  In many cases the beneficiary designation form also allows the owner to indicate if the lineal descendants of a deceased primary beneficiary should inherit the IRA before other surviving primary beneficiaries or contingent beneficiaries.  IRA owners should carefully read and understand the available options on a beneficiary designation form.  It is prudent to consider naming contingent beneficiaries, especially if only one or two primary beneficiaries are named.  

When life changes, often beneficiary designations should change too!

When IRA owners encounter major life events like divorce, marriage, or retirement, it is wise to reevaluate IRA beneficiary designations as soon as the dust settles.