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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and sponsored by Canada Life. For today’s Soundbites, we’ve asked Jack Manley, executive director, global market strategist with J.P. Morgan Asset Management, for a 2026 market outlook. We talked about supply side factors and sectors he likes, and we started by asking what macro forces he thinks will set the tone for global markets in 2026.

Jack Manley (JM): When I think about the primary macro forces setting the tone for global markets into 2026, there’s probably going to be a lot of noise out there, a lot of headlines, a lot of policy change, a lot of volatility in things like GDP data, in things like inflation numbers. The things that I think are really going to move the needle, though, is going to be the fiscal stimulus push that we are seeing, really, around the developed world. Fiscal stimulus is going to be a dominant force in 2026. I would also say we are going to continue to be talking about artificial intelligence. There’s a very good chance that investors start asking tougher, more critical questions of these companies. Is all this capex actually resulting in a tangible return — a question that, so far, has been very challenging to answer. And then finally, I think the labour market is going to come, really, front and center in 2026. There’s been a pretty notable deceleration in the pace of job creation in both Canada and the U.S. That I don’t think is going to change materially in 2026. That’s what central bankers are going to be talking about. That’s what the street is ultimately going to be talking about.

What explains the current labour market

JM: We know that in most of the developed world — Canada, the U.S. not excluded — demographics are abysmal. You have an aging population. You have a declining birth rate. Both countries have relied a whole lot on importing labour in the form of immigration. And while we know immigration has clearly become a hot topic in Canada, the much more significant policy shifts are happening in the United States. The growth of the labour supply in the U.S. is a whole lot softer than it was a year or two years ago. And that story is not necessarily true in Canada. And that, I think, really helps to explain why you’ve seen this meaningful divergence over the past couple years in the unemployment rates between these two countries. I think that’s the really interesting dynamic that’s going to get explored a lot more, I would say, next year.

Central bank policy

JM: The BoC has done a remarkably good job of front-loading a lot of their rate cuts, of being extremely reactive, responsive to deteriorating market conditions. The Fed has clearly been slower in policy normalization than the Bank of Canada has. And whereas the Bank of Canada is probably at right now a neutral policy rate, Jay Powell has made it very, very clear that he still thinks the overnight rate in the United States is restrictive. That would suggest that you would expect more cuts out of the U.S. than you would out of Canada. This changing view on rates may actually have more of an impact on Canadian equities than it would on American equities.

What risks are under appreciated by investors?

JM: Where I have a little bit of concern, is around the AI story. There has been pretty close to a trillion US dollars in capex without a trillion dollars’ worth of commensurate returns. Very deep index concentrations. And of course, very stretched valuations. All of that makes you very, very vulnerable to shocks. And you’ve seen a few of those happen. Those sell offs, they were intense. They were, like, 3%, 4%, 5% happening over the course of one or two days. We might see more of that next year, and we might see more exaggerated versions of that. 3% could very easily become a 10% shock. And so I think it’s going to be a pretty bumpy ride for equity investors. The other thing that I’m concerned about is on the supply side of things, in particular with the energy sector. Falling energy prices have been enormously helpful from an inflationary perspective in both Canada and the U.S. A lot of the big global hot spots are focused around massive energy markets. And if a barrel of WCS or a barrel of WTI were to double in price over the course of a couple of months because of a sustained geopolitical issue, it’s good for the energy companies, but it is bad for everybody else. That means probably a recession. It means a surge in inflation. It means a real decrease in earnings and profitability. Really challenging job for central banks. I think we’ve gotten complacent in how lucky we’ve been this year, that there hasn’t been some sort of big, panicky spike in energy prices. And I’m not saying it’s going to happen in 2026, but I don’t think we can pretend like it’s now an impossibility. It is very much a potential outcome for next year.

The impact of recent events in Venezuela

JM: Venezuela sits on the largest proven reserve of crude oil in the world. It’s more than Saudi Arabia, it’s more than Iraq, more than Iran, more than Canada by quite a wide margin. And in theory, if all of that oil were to be tapped to the extent that it probably should have been tapped, you would see pretty significant downward pressure on global energy prices. That’s a lot easier said than done, though. I mean, you have decades of under-investment in infrastructure in Venezuela. You have decades of brain drain for the industry. Getting Venezuelan energy output up to levels that we saw, say, back in the ’60s, would require tens, if not hundreds, of billions of dollars of investment. We also have to acknowledge that the crude that Venezuela pumps is very heavy. It requires a lot of refining, and while the United States has plenty of refining capacity, the infrastructure to transport all that oil from Venezuela up into Texas, let’s say, may not necessarily exist. So it’s not just about a massive domestic investment. It is also about a massive investment in broader transportation infrastructure. It’s not to say that we can’t see a meaningful increase in Venezuelan production, but it is to say that that meaningful increase in Venezuelan production is probably not going to happen overnight.

And, finally, what’s the big takeaway for investors planning for a profitable 2026?

JM: 2026, like 2025, is going to be very, very noisy. Ongoing noise around policy change from a fiscal perspective, from a monetary policy perspective. A lot of noise around labour. A lot of noise around inflation. A lot of volatility in GDP numbers. There’s going to be a lot of noise. Try to put some earmuffs on and hear through it. Because if you’re able to ignore a lot of that noise and really focus in on just the signal, you’re probably going to end up having a perfectly fine year from a portfolio performance perspective.

Well, those are today’s Soundbites, brought to you by Investment Executive and sponsored by Canada Life. Our thanks again to Jack Manley of J.P. Morgan Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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