Highlights
With just one month to go before the end of the year, 2025 looks set to be another excellent vintage for investors, with stocks posting above-average gains for the third consecutive year. Can the momentum continue into 2026?
On the economic front, the most likely economic scenario seems to be one of growth broadly in line with potential, with a slightly higher risk of modest overheating than recession. In any event, political uncertainty will remain omnipresent, with a change of leadership at the Fed in May and midterm elections in the United States in November.
That said, we must remain attentive to the frantic race for advances in artificial intelligence (AI), which is increasingly supporting equity markets. For now, the outlook for productivity gains is encouraging and the fundamentals of hyperscalers remain solid. Still, the stakes are high... and the risks very real.
In this context, we maintain a favourable stance toward equity markets based on four measurable conditions: more accommodative central banks, resilient global growth, healthy earnings growth, and positive momentum.
Within equities, after a significant adjustment in relative valuations, the ranking between regions should rely more on earnings growth which tends to disadvantage the EAFE region. For fixed-income assets, while we can expect returns in line with current yields, the margin of uncertainty prompts us to maintain a neutral duration. Finally, the Canadian dollar offers some upside potential, while gold prices could well disappoint the optimistic majority.
Bottom Line
While the economic backdrop remains fraught with uncertainty, there are not yet sufficient signs that the factors supporting the bull market will soon reverse. This environment calls for a risk-friendly asset allocation strategy, while retaining the flexibility to adapt for the inevitable surprises that 2026 will bring.