After three consecutive years of strong stock market returns, many investors are wondering whether the market, and economy, can continue powering upwards. An impressive track record over recent years does not necessarily mean that the strong performance will not continue. Today however, there are an increasing number of risks that investors are concerned about.
Economic Resilience in 2025: Canadian and US Strength
In 2025, the US and Canadian economies continued to prove their resiliency. Facing unprecedented tariffs, the Canadian economy outperformed the expectations of most economists last year. Canada’s economic outperformance can be partly attributed to the USMCA agreement. Under this framework, Canada’s average tariff rate on US exports remained at approximately 6%, significantly lower than rates imposed on many other nations.
The US economy similarly exhibited strength in 2025. Driven by a strong consumer and productivity gains from AI technologies, profits for many large companies reached all-time high levels.
U.S. Debt Dynamics: A Critical Juncture
The escalating US debt-to-GDP ratio has reached historically high levels, posing a systemic challenge. Stabilizing this metric will require a dual focus: sustained economic growth and measured interest rate reductions. If achieved, these conditions could mitigate debt concerns and preserve the US dollar’s global reserve currency status. Failure to address this imbalance, however, risks eroding the dollar’s dominance and the US’s influence worldwide. We expect Donald Trump to continue calling for lower interest rates, while promoting high-growth policies, for the foreseeable future.
AI Disruption
Throughout 2026, we expect AI-productivity gains to accelerate. Many industries will be disrupted by technologies that produce better results at a fraction of the cost. From an investing perspective, we think it is critical to continually ask how AI will change businesses. Unfortunately, AI-driven productivity will likely result in job losses – especially for younger generations. As this unfolds over the coming years, ensuring that new jobs are created will become a central focus for politicians.
The Donroe Doctrine & 2026 Outlook
Recently, lots has been written on the ‘Donroe Doctrine’ - a play on the ‘Monroe Doctrine’ – which refers to former US president James Monroe’s aggressive foreign policy in the 19th century. Clearly, in his second term, Trump has taken a significantly more assertive foreign policy approach. It is clear he is using the power of the US to assert influence over foreign countries (Venezuela), engage in more transactional diplomacy (tariffs and investment deals) and expand US territory (Greenland). There is no reason to think this will change anytime soon.
For 2026, we are cautiously optimistic that the economy and markets will continue to remain strong. We expect a tug of war between positive forces (lower interest rates and a strong consumer) and concerning forces (expensive stock markets and geopolitical concerns). It is not clear which force will win. What is clear: we are in a whole new world.
Pearlstein Wealth
We are excited that Alicia returned to the team in mid-December from maternity leave. It is great to have her back!
Wishing everyone a happy and healthy 2026!
Pearlstein Wealth
