After a strong 2025 and a positive start to 2026, markets are entering a year that feels more balanced than dramatic. The backdrop remains supportive, but this is a time for thoughtful positioning rather than reacting to every headline.

We are now several years into a bull market that began after the 2022 pullback.

What’s notable is that this cycle has continued without a recession, despite several years of higher interest rates. Inflation has eased, growth has held up, and markets have had time to adjust.

That’s a healthy environment — but it also means markets are no longer “cheap.”

The Economic Picture: Supportive, with Some Bumps Along the Way

The economy continues to show resilience. Unemployment in the U.S. is near levels last seen in the early 1970s, which helps explain why consumer spending has remained surprisingly steady, even after a period of higher borrowing costs.

Inflation has cooled from its peak, taking pressure off both households and businesses. Interest rates are no longer rising quickly, and while they may move around over time, we appear to be past the most difficult phase of rate increases.

That said, we should expect ongoing volatility. Political headlines, global tensions, and unexpected announcements can move markets quickly — sometimes with little warning. President Trump, in particular, is known for embracing disruption and uncertainty, and markets do not love surprises. We may continue to see short-term pullbacks tied to headlines rather than fundamentals.

For investors, this is an important reminder: markets can be noisy in the short term, but over time they tend to be driven by earnings, economic growth, and business fundamentals. Periods of volatility are uncomfortable, but they are also normal — and often reward investors who stay patient and focused on the bigger picture.

Stocks: Still Attractive, Just More Selective

Stocks remain an important part of portfolios in 2026, especially compared to sitting in cash. However, expectations should be more realistic than they were in recent years.



One reason many portfolio managers remain optimistic over the next few years — even while acknowledging short-term uncertainty — is that several supportive forces are lining up at the same time. No one can predict what markets will do over the next three to six months, but over a one-to-three-year horizon, the picture remains constructive.

Economic growth is still happening, inflation has come down, and interest rates are no longer moving higher at the pace we saw earlier in the cycle. Consumers continue to spend, the labour market remains healthy, and there is still a significant amount of cash sitting on the sidelines that could gradually move back into markets as confidence improves.

In addition, policies such as tax cuts and business incentives tend to support both consumer spending and corporate investment. Taken together, this backdrop supports a continued bias toward growth assets like stocks, while still being thoughtful about risk.

Looking further ahead, improvements in productivity — including the practical use of AI — could meaningfully improve efficiency and profitability across many industries. Importantly, this doesn’t necessarily mean widespread job losses, but rather smarter use of labour and technology. That combination helps support longer-term earnings growth, even if markets don’t move in a straight line.

That said, U.S. stocks are more expensive than they were earlier in the cycle. This doesn’t mean avoiding them, but it does suggest returns will depend more on which companies you own, rather than simply being in the market.

Outside the U.S., there are attractive opportunities as well. Canada, Europe, and certain international markets offer diversification and, in some cases, more reasonable valuations. Spreading exposure across regions continues to be an important way to manage risk.

Bonds: Back to Their Supporting Role

Bonds are once again doing what they’re meant to do: providing stability and income. Return expectations are more modest, likely in the low-to-mid single digits, but bonds still play an important role in smoothing out portfolio ups and downs.

Rather than relying on bonds for growth, many portfolios are structured so bonds act as a stabilizer while other areas do more of the heavy lifting.

Alternatives: A Helpful Diversifier

One theme we continue to see is the growing use of alternatives — such as market-neutral strategies, infrastructure, or select private investments — to improve diversification.

These investments are not meant to replace stocks or bonds, but they can help reduce volatility and provide additional sources of return, particularly when traditional asset classes move together. For most investors, alternatives make sense as a small but meaningful complement to a diversified portfolio.

Technology and AI: Evolution, Not Euphoria

Artificial intelligence continues to change how businesses operate, but the investment opportunity is becoming more nuanced. Rather than everything hinging on a few well-known names, the benefits of AI are likely to spread across many industries through productivity and efficiency gains.

This environment tends to reward careful stock selection and active management, rather than simply owning the most talked-about companies.

The Bottom Line for 2026

2026 looks like a year where balance and discipline matter more than bold predictions.

Markets are supported by solid fundamentals, but higher valuations, political uncertainty, and occasional volatility reinforce the importance of diversification. Staying invested, spreading risk thoughtfully, and keeping portfolios aligned with long-term goals remain the most reliable approach.

As always, the focus isn’t on timing markets or reacting to headlines — it’s on building portfolios that can support the life you’re planning for, through both calm and uncertain periods.

Source: www.bloomberg.com