5 key themes for 2026

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1)  U.S. an outlier in a world of pausing central banks

• Policy rates for central banks across Canada, Europe and major emerging market economies appear to have reached their bottom for the cycle after a brisk pace of easing in 2025.
• The U.S. Federal Reserve (Fed) stands out as an exception, having spent much of 2025 on pause. In 2026, markets expect the Fed to have a bias towards cutting rates due to a continued cooling of the U.S. labour market. A new Fed chair is also slated to take the helm in May, who is likely to be more dovish.
• For equity markets, the Fed’s central role in setting the tone for risk appetite means that high valuations will remain supported by monetary policy through 2026.
• The U.S. dollar is likely to continue to drift lower as interest rate differentials narrow with the rest of the world

2)  AI investment faces its ROI moment

• 2025 marked another year of extraordinary capital spending on AI infrastructure, with hundreds of billions of dollars invested in graphics processing units, data centres, networks and foundational models.
• The scale of capital expenditures (capex) and lofty valuations for AI-related stocks have led to many comparisons to the dot-com bubble that peaked in 2000.
• We don’t believe we’re near to an AI bubble bursting this year. But we do believe the market will look for more evidence of the return on investment (ROI) of AI applications across sectors of the economy.
• The AI investment boom has been different from other capex cycles in that the labour market hasn’t grown alongside capital spending. This dynamic is likely to continue into 2026 as AI displaces workers, and markets could struggle to assess the net benefit of increased profitability versus a weakening consumer.

3) Persistent K-shaped dynamics reshape macro and markets

• We’ll hear a lot about the letter “K” in 2026, referring to a pattern where certain corners of the economy or markets perform well while others stagnate, leading to a distinct “K-shape.”
• One of the clearest examples over the past several years has been rising stock markets alongside consumer confidence that continues to deteriorate, in no small part due to an elevated cost of living.
• Diving into the details, roaring stock markets have allowed asset owners in higher income brackets to express higher confidence this past year, while those in lower income brackets have expressed deteriorating sentiment.
• The “K” is likely to grow in 2026 as economic activity for higher income cohorts with exposure to markets outpaces that of lower income brackets facing higher prices and a weakening labour market.

4)  Distinct investment themes in a multipolar world

• U.S.-listed AI mega-cap stocks get all the glory, but distinct themes have emerged across regions.
• The geopolitical shift from a U.S.-led unipolar consensus has split global market leadership into several lanes that outperformed the AI theme in 2025:

o   Defence stocks in Europe benefited from increased budgets across the continent, partly due to U.S. pressure on NATO members to increase their defence spending.

o   Metals and mining stocks in Canada rallied as precious metals benefited from a broad diversification in reserves away from U.S. dollars. Copper gained with increased demand from electrification and data-centre builds.

o   Robotics stocks in China surged as the country emerged as a leader in the area while U.S. technology companies remained focused on AI.

• Looking to 2026, portfolios that are broadly diversified across geographies and themes stand to benefit.

5)  Divergence makes active management matter again

•  While active management in U.S. markets has struggled in recent years due to the concentration in large-cap technology stocks, active strategies outside the U.S. have fared far better with a broader opportunity set.
•  Many of this year’s themes will support active management in 2026:

o   Markets will begin to differentiate between companies showing an ROI on their AI investments and those that are not.

o   K-shaped dynamics will create distinct winners and losers as the economy continues to diverge between income brackets.

 

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