Welcome to 2026 and the new world order. This week we’ll review 2025 and highlight key trends to watch in 2026. Before we start though, we don’t have quite enough hubris to make bold predictions. We find scenario planning a much more fruitful exercise than trying to predict a quickly evolving world.
| Index | Close Dec 30th 2024 | Close Dec 31st 2025 |
| S&P500 | 6,5942 | 6,845 |
| TSX60 | 25,074 | 31,866 |
| Canada 10 yr. Bond Yield | 3.23% | 3.44% |
| US 10 yr. Treasury Yield | 4.60% | 4.17% |
| USD/CAD | $1.4448 | $1.37207 |
| Brent Crude | $76.51 | $60.85 |
| Gold | $2,638 | $4,320 |
| Bitcoin | $98,403 | $87,496 |
Source: Trading Economics & Factset
While Donald Trump was the gift that kept on giving to newsrooms, bloggers and podcast hosts, he wasn’t the only story in town. (Though it does seem like it most days.) The markets went from reacting to every late-night tweet to the Taco (Trump always chickens out) trade by the spring and fundamentals reasserted themselves as the primary drivers of the markets.
Inflation continued to fall in most of the world and short-term interest rates followed suit. The US was a bit of an outlier where inflation proved to be stickier than here in Canada or Europe. In Canada inflation had fallen from its 2022 high of 8.1% to 1.9% at the start of 2025. While it rose a bit towards the end of the year, it has remained close to the Bank of Canada’s 2% target. Europe was much the same story, but the US has been tracking closer to a 3% rate. Most central banks were able to lower their benchmark rates giving some relief to borrowers.
Tariffs were big story for the first half of 2025. After an initial shock when Donald Trump announced exorbitant hikes on “Liberation Day” in April, countries managed to negotiate (or pay bribes) lower rates. It was all very ad hoc, and supply chains remain in flux. In Canada, the pain has been more sectoral with steel, aluminum, lumber, and autos taking a major hit. Overall, thanks to CUSMA, Canada and Mexico have been spared the worst with average tariffs around 6%.
The equity markets continued to climb in 2025, but the US did not lead the way. The S&P500 was really a story of 2 markets, AI and the rest. The “Magnificent 7” accounted for 42.5% of the total index return of 17.9%. Both the TSX (Canada) and the EAFE (Europe, Australasia, Far East) indices handily outperformed their US counterpart.
Artificial Intelligence (AI) was the market darling last year with valuations climbing throughout the year. Fears of a bubble and a replay of the 2001 tech crash did not come to fruition. The AI story was not just one of software and chatbots but also one of energy, geo-politics, and national security. To power their data centres the leading AI providers {Microsoft, Alphabet (Google), and Meta (Facebook)} are investing heavily in their own power generation infrastructure, with nuclear quicky becoming a preferred option. In Canada, Alberta sees data centres as steady local customers for electricity generated by natural gas.
Ancillary to both AI and tariffs was the realization that China has a near lock on critical minerals. Perhaps the under-reported story was the forced détente between China and the US when China started to restrict the export of critical minerals.
Looking ahead to 2026 we see both risks and opportunities. On the risk side we will be paying attention to:
– Inflation in the US. It is still not where the Federal Reserve would like it to be, but Donald Trump will find a way to lower rates aggressively, which could spark another bout of inflation.
– Deflation in China. China has not managed to stop the slide in its real estate market nor spur consumer spending. Over capacity and intense competition amongst manufacturers spurred deflation for almost half of 2025. This risk spills over to China’s trading partners as China’s need to export grows.
– AI doesn’t live up to its promises (yet). There is a lot of hype around AI but we have yet to see the productivity gains. The AI ecosystem won’t collapse but could well disappoint in the near term
– Oil prices continue to falter. The world currently has a large surplus of oil and Donald Trump is determined to produce more (see Venezuela). At the same time, China and much of the Global South are moving away from fossil fuels slowing demand growth.
But there will be opportunities as well:
– The AI revolution may stumble in the short term, but the potential productivity gains can raise profits for both user and providers. It will continue to spur capital investment in data centres and new energy infrastructure.
– Infrastructure spending in general from ports, to pipelines, to high-speed rail will be a boost to GDP and employment.
– Advance manufacturing and robotics. To remain competitive, companies of all stripes will need to automate more processes and service. This will go beyond single task robots such as the ones that have taken over the assembly lines. It will evolve to autonomous robots capable of more complex tasks. Even better, it may relieve us of some household drudgery with robots like the Neo Home Robot.
– Alternative energy source. A recent episode of The Economist’s Insider series high-lighted the rise of new and not so new energy sources. Geo-thermal is available throughout most of the world. The editors also predicted that fusion technology could be commercially viable by the end of the decade. Renewable locally sourced energy makes both economic and environmental sense. It also reduces geo-political risk as countries are not reliant on energy sourced from unstable or unfriendly regions. (See western Europe after Russia’s invasion of Ukraine) It is why China is focused on electrons rather than molecules.
There are also a few red herring risks to be wary of. They make great headlines but have low probability. (We’re thankful to the Eurasia Group for bringing some of these to our attention)
– Collapse of the US dollar. Not today and not tomorrow. There is no other currency with the depth of liquidity and stability in circulation. Every other major currency has its own drawbacks. To bring back a term from 5 years ago – It is a TINA trade (there is no alternative)
– Yes, the US has imposed tariffs and yes, it has disrupted supply chains. This doesn’t mean the world will deglobalize, it means our trading patterns and partners will change.
– Spheres of Influence. Recent commentary suggests the world will be carved up into 3 spheres of influence controlled by the US, Russia, and China respectively. That pre-supposes that other countries don’t have agency of choices. The world is a much more fragmented place and in this new world order alliances will shift.
With that we’ll close off 2025 and look forward to a very interesting 2026. We’ll leave you with this mechanized music from Styx… enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
