Looking Ahead to 2026
Some long-term themes
Market Review 2025
After a year of strong performance in 2024, I cautioned my clients this time last year to adjust their expectations down to long-term averages. In the investment industry, it’s called a reversion to mean.
Source: FactSet Dec 31, 2025
Global stock markets again exceeded expectations. For the third time in 10 years the S&P/TSX Composite Index (+28%) outperformed the S&P 500 Index (+16%) in the U.S. In the above chart you can see the steep drop in April when import tariffs to the U.S. were announced, followed by a strong rebound. The markets continued to rally, led by mega-cap Tech companies.
Concentration of returns
In the U.S. the largest companies by market capitalization (value) now dominate the indices. The top five companies in the S&P 500 (Nvidia, Microsoft, Apple, Alphabet and Amazon) account for 30% of the of the index. If we extend to the top 10, they add up to almost 40% of the index. Nine of the top 10 are involved in the artificial intelligence field, directly or indirectly. Nvidia became the first company to pass the $5 trillion milestone. Other sectors that did well included the banks—thanks to lower interest rates-- and precious metals, driven by a rally in gold and silver prices. Demand from central banks for their reserves and geopolitical uncertainty have supported the price in the yellow metal. Gold is also a traditional hedge against inflation.
U.S. lost its leadership, for now
For the past decade the U.S. stock market has been a global leader. Its return in 2025 was very good, but lagged the performance in Europe, Asia and Canada. Markets outside of the U.S. did some catching up with the U.S. The MSCI EAFE index that includes developed markets in Europe and Australasia was up 27.9% in 2025. Within that S. Korea surged 76% followed by Spain in second place at +49%. Diversifying from the concentrated U.S. market may make sense.
Long-Term Themes
Having passed the first quarter of the 21st century, we can look ahead at some themes that may shape global economic development and financial returns. The Global Insight 2026 Outlook published by RBC Wealth Management (click here for PDF) re-caps some key events in the first 25 years of this century and postulates what might be the developments in the next 25.
Remember these?
There is a tendency for us to recall only recent events and place less importance on significant developments further back in history. Psychologists call this selective memory Recency Bias. The dot-com bubble (2000), U.S. housing crisis that triggered the Great Financial Crisis (2008) or the European sovereign debit crisis (2012) have begun to fade in our collective memory. Perhaps it is a sign of human resilience that gives us the ability to move on from past traumas. If there is a lesson to be learnt from such disruptive events, it is that they don’t last forever, and that better days usually follow bad ones.
Looking ahead
The phrase, “predictions are hard, especially about the future” has been attributed to various sources. January is when my email Inbox is full of reports from different sources with their predictions for the coming year. My conclusion after many years of reading such lists is that no one has a perfect, or even half-decent crystal ball. As for my own forecast in the Smart Investor a year ago, I was right about falling interest rates, but wrong (in a good way) about the impact of tariffs on global trade and the Canadian stock market.
Some themes
Some established themes are likely to extend into the next quarter century, including the rise of China, the dominance of the technology sector and demographic challenges (declining population) in the developed world.
Artificial intelligence will likely become pervasive and potentially transform the way we work and how societies function. It is almost certain it will have an impact, both positive and negative on our economic well-being. We can only guess at how our lives would be transformed by AI. Electrification will place increasing demand on energy generation, at the same time as we experience more frequent climate events exacerbated by our reliance on burning fossil fuel. Any breakthrough in clean sources of energy will be transformative.
A Balanced Approach
Your portfolio
Investing is not about making predictions and placing bets accordingly. We need to focus on what we control. We don’t control performance, but we can choose to invest in the most successful businesses (or funds that invest in them) or decide how much risk we should take. We know that shares in profitable companies go up over the long term. For safety and income, we include high quality bonds. Adding some alternative funds will also enhance stability. In other words, we can build a diversified all-weather portfolio that could survive and thrive through different conditions.
Your estate plan
A study by Royal Trust and the National Institute of Ageing (NIA) in 2023 found that only 48% of Canadians have a Will, and a third have a power of attorney (POA). Many of those surveyed said they simply did not know where to start. A properly drafted Will and POA are the cornerstone, but not the only components of an estate plan. There may be tax minimizing strategies, trust or philanthropic considerations for some families. If you are one of those who need some pointers on where to start, please let me know. I am in the process of updating my Will and drafting a new POA – walking the walk, as it were. You can review the extensive resources on my website.
Your health
Not only is your financial well-being important, working on your physical health may also pay dividends, of a different sort. I intend to keep up my cycling and regular strength training program this year. Adults lose about 1% of muscle mass (sarcopenia) or 2% in strength a year after age 50. Strength training helps maintain muscle mass and strength, thus improving balance and ability to do everyday tasks into the senior years. Physical activity can also boost mental health. Please consult your doctor and a professional trainer before you start a new exercise plan.
Shiuman’s Corner
Books of 2025
Photo: ChatGP
My goal is to read a fiction and a non-fiction each month of the year. This year I fell short, but I hope you find one or two titles from my list that sparks your interest. It was by chance that I read two different novels –- The Piano Tuner and Burma Sahib – that were set in British Burma in the 19th century, which is known today as Myammar. Piano tuning was probably once a more common profession, two generations ago because the protagonist in another novel (The Glass Pearls) set in London in the 1950s was also a piano tuner. A most remarkable thing happened when I was reading the Piano Tuner—a hundred pages in, the story took a very dramatic and sudden turn. From Burma the story moved to the American Midwest for the next hundred pages, featuring completely new characters. I thought maybe the author was using a literary device I had never encountered. The story then abruptly switched back to Burma. I entered the plot of the second story into ChatGPT to ask what it was. It turned out it was a publication error, mixing up pages from two different books. The book store where I bought the book gave me a new copy, so I was able to finish it. A recent news article lamented that some students no longer read entire books, but rely on summaries by artificial intelligence. Would you rather taste the food in restaurants or just read reviews of
them! I know which I will choose!
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â / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Dominion Securities Inc. (2026). All rights reserved. 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. â / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Dominion Securities Inc. (2026). All rights reserved.
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