Good day everyone.
I hope you are all doing well. Christmas is approaching, which is a busy time for everyone and its also when we see investment banks publish their market outlooks for the coming year. RBC Dominion Securities has just published their Global Insight 2026 Outlook – The Future is here…and Gathering Speed. CLICK HERE for a copy of the full article (38 pages). Below I’ve put together a condensed version of the key points highlighted that are pertaining to equity markets, just in case you don’t have the time (or the desire) to read the full article.
Following the excerpts from the Global Insight 2026 Outlook, I’ve also included a few points from Robert Sluymer’s Trend & Cycle 2026 Technical Outlook. Robert is the technical strategist for our firm, his articles are a personal favorite of mine.
Enjoy.
Excerpts from the Global Insight 2026 Outlook – The Future is here…and Gathering Speed.
More But Less
The combination of lower inflation, lower interest rates, and faster GDP growth required for continued gains won’t be easy to achieve. We think “positive” rather than “above average” is the outcome to plan for.
We can see a plausible path to another year of positive gains for most major stock markets—but likely at a more sober pace.
We expect equity markets in the developed economies will post more new highs in 2026 and deliver all-in positive returns.
We think confidence that the S&P 500 can deliver average to above-average returns in 2026 rests on two inter-related premises: The U.S. economy avoids recession; and the AI story isn’t dealt any serious blow.
How Does AI Fit into the Picture?
AI is a rapidly changing component of the U.S. economy through its very large contribution to index earnings and to GDP growth.
We think investors are willing to pay a premium multiple for the AI leaders because of their superior earnings growth now and their perceived capability to deliver more in the future. The average P/E for the top 10 weights sits near 27x earnings (long-term average 18.6x) while the rest of the index trades at 17.7x (long-term average 15x).
AI is also very important to GDP growth expectations in 2026 and beyond because of the dramatic growth in capital spending by the big developers and the expectation that more and more successful applications of AI will emerge which promise to prompt heavy future investment by users.
The spending is also running up against constraints, the most important of which is the availability of electric power to run the fast-proliferating data centers. Estimates vary, but the idea that U.S. generating capacity needs to grow by 20 percent over the next five years is widely mooted.
Much the same setup in other developed markets
Most developed economies are running stimulative monetary and fiscal policies in the same direction as the United States.
These feature rate cutting by central banks, a commitment to much higher defense spending, initiatives to boost power-generation capacity and strengthen grids, as well as to develop AI capability.
They are also faced with many of the same challenges: anemic GDP growth, trade uncertainties, mounting fiscal debt burdens, and fraught politics.
Canada equities
In 2025, the S&P/TSX Composite is on pace to produce one of the better returns among developed country equity markets.
Outperformance can largely be attributed to all-time high gold prices and an improving outlook for key market segments including domestic lenders.
While U.S. administered tariffs remain a key overhang on a global scale, the USMCA has provided shelter to many Canadian industries. As the USMCA comes up for joint review next summer, we are hopeful that the current agreement will remain relatively unchanged.
Under the 2025 federal budget, the government proposed $280 billion in increased spending and capital investments over five years. Investments are focused on infrastructure, productivity and competitiveness, defense and security, and housing.
At a multiple of 15.9x price-to-earnings valuation, the S&P/TSX continues to trade at a premium to its long-term historical average valuation multiple of 14.7x. However, this premium is significantly lower than the S&P 500’s 21.3x multiple relative to its long-term average multiple of 16.6x.
Oil
The price of oil remained volatile throughout 2025, driven by a confluence of geopolitical tensions, persistent macroeconomic uncertainty, and a seemingly intensifying supply overhang as OPEC+ continued to release barrels into the market pushing above-ground inventories to new highs.
This dynamic has shifted looking ahead to 2026. While the global macroeconomic landscape shows few clear signs of improvement, OPEC+ has opted to pause additional output increases for the first quarter of the year.
We believe this strategic adjustment has the potential to remove some of the downward pressure and provide some degree of support for prices in the new year.
Gold
The price of gold reached new all-time highs in 2025, driven by a combination of geopolitical risk, a declining interest rate environment, policy uncertainty, and global central banks diversifying reserves away from the U.S. dollar.
Looking ahead to 2026, RBC Capital Markets expects continued central bank purchases and sustained macroeconomic uncertainty to maintain sufficient demand to keep bullion prices elevated
U.S. dollar
Structural USD weakness remains unchanged. We think the dollar will continue to be on a structural path lower in 2026, driven by more interest rate cuts in the U.S. and an ongoing asset reallocation out of the greenback into other major currencies such as the euro, unless economic data in the U.S. improves unexpectedly.
The independence of the Federal Reserve may also be put in question again and weigh on the dollar, with U.S. President Donald Trump likely to opt for a more dovish nominee to replace current Fed Chair Jerome Powell, whose term ends in May 2026.
Canadian dollar: USD/CAD target at 1.31 for year-end 2026
RBC Capital Markets expects USD/CAD to reach the low 1.30s in 2026, with the interest rate gap between the U.S. and Canada forecast to narrow materially by the end of 2026.
RBC Capital Markets notes risks around the U.S.-Mexico-Canada Agreement (USMCA) renegotiations, but as long as exemptions remain in place for Canada, the U.S. effective tariff rate on Canadian imports should remain low versus the rest of the world.
Canada is exempt from most U.S. tariffs, except for specific sectors like steel, aluminum, and automobiles, all of which face steep tariffs.
Excerpts from the Trend & Cycle 2026 Technical Outlook
Secular Outlook – Supportive of further upside into the mid 2030s toward S&P 14,000
We continue to view the long-term structural uptrend and 16-18 year generational cycles to be supportive of further upside through into the mid 2030s.
If the two prior secular bull cycles of the 1950s-1960s and 1980s-1990s are a prologue for the future, then the current secular bull market could rally to 14,000 or higher.
What does history suggest about a positive year in 2026 after three years of positive returns?
Many investors are understandably questioning whether the S&P will generate a fourth year of positive returns. History suggests it is possible with four back-to-back positive years between 1942-1945 and 1949-1952, five positive years in 1995-1999 and 2003-2007, and eight positive years between 1982-1989.
What does US Presidential cycle suggest for 2026?
2026 is year 2 of the presidential cycle… year 2 of the presidential cycle has averaged the largest intra-year drawdowns.
While a multitude of macro or geopolitical events could lead to an equity correction in 2026, our expectation is that rising long rates will be the major risk to equity markets in 1H 2026.
International Equity Markets – Price trends remain positive but relative performance versus the S&P 500 remain negative.
Financial headlines have focused on non-US equity markets outperforming the S&P 500 year to date but two details are often omitted.
First, the bulk of the relative outperformance versus the S&P 500 in US dollars quickly eroded following the April equity market lows when US growth stocks rebounded strongly.
Second, beyond a brief relative performance surge in Q1, the overall relative performance trend for non US equity markets remains down.
Bottom line
The historical data provides a framework to consider paths equity markets may follow in the coming year.
The potential for an above average intra-year drawdown is noteworthy through 1H 2026.
Our expectation is for the S&P to have a modest gain between 6-9% next year based on historical returns suggesting a year-end target of 7300-7500 round numbers.
Further upside into Q1 appears likely with our weekly quadrant balance indicator, tracking the percentage of stocks with rising weekly momentum, expected to peak and turn negative by mid-late Q1.
What do we view as risks to equity markets? Despite the consensus view that the US central bank will continue to provide liquidity to equity markets in the form of lower interest rates, a reversal of the 2026 downtrend would become a catalyst for equity markets to correct.
Well, that was a lot of reading and if you made it this far I’m impressed! To summarize the above mentioned points in my own words, I think it is reasonable to have a cautiously optimistic outlook for 2026 given that earnings growth remains quite strong and the risk for recessions remains low, while also acknowledging the positive yet sluggish GDP growth rates in Canada & the US, and that a correction or two (which are a normal & healthy component of bull markets) will likely be in the mix for next year.
As always, please do not hesitate to reach out to me should you have any questions or concerns.
All the best, Evan
Evan Thompson | Senior Investment & Wealth Advisor
Thompson Wealth Management | RBC Wealth Management | RBC Dominion Securities Inc.
T. 403-341-8884 | T. 1-800-663-6087| F. 403-341-8887 | www.thompsonwealthmanagement.ca | 300, 4900 - 50 Street, Red Deer, AB T4N 1X7
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under license. © 2025 RBC Dominion Securities Inc. All rights reserved.