After another strong year for equity markets in both North America and overseas, investment strategists remain mostly bullish for 2026. At the same time, there’s growing recognition of the need for prudent diversification beyond the booming U.S. mega-cap growth stocks led by the so-called Magnificent Seven.
The AI theme remains very much intact as a key driver of economic growth. What some strategists are recommending in 2026, however, is to take a broader view as to which companies will benefit.
Productivity enhancements resulting from AI applications “should allow countries like the U.S. that have higher multiples to support those valuations,” said Michael Greenberg, senior vice-president, portfolio manager and head of Americas portfolio management for Franklin Templeton Investment Solutions in Toronto. “And it should potentially unlock lower valued markets like Europe and even emerging markets.”
Speaking to a Toronto audience of financial advisors, Greenberg said there’s no suggestion that investors abandon U.S. equities. “They obviously play a very important role within portfolios.” But over the long term, he recommended that portfolios that are overexposed to the U.S. should look at diversifying into Europe, emerging markets and Canada.
U.S. technology stocks could well maintain their momentum, given the rate of investment and anticipated earnings growth, according to the Vanguard organization’s 2026 outlook, released by Vanguard Investments Canada Inc., Canada’s third largest ETF provider.
However, the Vanguard paper adds, “more compelling investment opportunities are emerging elsewhere, even for those investors most bullish on AI’s prospects. Our conviction in this view is growing, and it parallels investment returns in previous technology cycles.”
According to Vanguard’s capital-markets projections over the coming five to 10 years, the strongest risk-return profiles across public investments are high-quality U.S. fixed income, followed by value-oriented U.S. equities and non-U.S. developed-markets equities.
Marc Seidner, chief investment officer of non-traditional strategies for multinational investment giant PIMCO, whose subsidiaries include Toronto-based PIMCO Canada Corp., characterized U.S. equities as expensive on the surface with value underneath.
The tech sector, Seidner argued, has entered a more capital-intensive phase with AI-related spending increasingly fuelled by debt rather than free cash flow. “With high valuations concentrated among a small number of companies, it’s not difficult to find attractively valued stocks with desirable characteristics such as robust balance sheets and healthy growth,” he said. “Consider tilting toward undervalued sectors rather than chasing the most expensive parts of the market.”
In its 2026 outlook, U.S.-based Invesco Ltd. — which announced Tuesday that it is selling its Canadian fund business to CI Global Asset Management — pointed to “compelling opportunities” beyond the AI-driven tech sector.
“We believe stocks are more attractively priced in non-U.S. markets, smaller-capitalization stocks and cyclical sectors within the U.S.,” said the report co-authored by Brian Levitt, Invesco’s chief global market strategist, and Benjamin Jones, global head of research.
The BlackRock Investment Institute, a research affiliate of Canadian ETF market leader BlackRock Asset Management Canada Ltd., is recommending a continued overweight in U.S. equities.
“We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large, listed tech companies,” the BlackRock outlook report said.
Sadiq Adatia, chief investment officer of BMO Global Asset Management (GAM), expects that continued easing of interest rates by both the U.S. Federal Reserve and the Bank of Canada “should support valuations and extend the current rally” in North American equity markets.
While remaining cautiously optimistic, Adatia said BMO GAM recognizes that “policy direction, employment stability and tariff effects will define the next leg of the cycle.”
He said the One Big Beautiful Bill Act in the U.S. “should stimulate the economy in 2026 by boosting household disposable income through permanent tax cuts and new deductions, while encouraging business investment, leading to higher growth, job creation and wage gains.”
Canadian equity market
Here at home, CI GAM, expects the Canadian equity market to perform “reasonably well,” with returns in the mid- to high single digits, in line with historical averages.
“Canadian companies are likely to see earnings growth supported by higher levels of consumer and government spending, the continued flow-through of lower interest rates (and) increased corporate investment,” CI GAM said in its 2026 market outlook.
The fund manager assumes a “reasonable outcome” on trade negotiations with the U.S. But it cautioned that valuations for the Canadian market have increased in nine of the past 10 quarters. Relative to historical levels and bond yields, domestic stocks are neither expensive nor cheap, CI GAM said, adding that it does not expect significant gains from multiple expansion.
TD Asset Management Inc. (TDAM) noted that even at recent record highs, the S&P/TSX composite index still trades at a discount relative to the S&P 500. In its bullish outlook for Canada, TDAM cited a surge in capital projects tied to infrastructure, critical minerals and energy transition, along with strong global demand for commodities, including gold, uranium and base metals.
“Investors may increasingly view Canada’s sector mix, energy, materials and financials as the perfect complement to the technology-heavy U.S. landscape,” TDAM concluded.
In fixed-income markets, BlackRock strategists favour Canadian government bonds over U.S. Treasuries, especially in longer-dated maturities. In the U.S., BlackRock expects high debt-servicing costs and price-sensitive domestic buyers will push investors to demand more compensation for the risk of holding long-term bonds.
By comparison, Canada’s stronger fiscal position and softer growth outlook should keep long-term yields relatively anchored, according to BlackRock. However, it cautioned that Prime Minister Mark Carney’s investment-oriented federal budget presents risks because of the need to attract sufficient private capital.
Citing declining money-market yields, PIMCO recommends rotating from cash into high-quality bonds “for the potential to lock in yields and position for capital appreciation as interest rates decline.” It favours two- to five-year bond maturities.
Credit spreads remain tight, said PIMCO’s Seidner, calling for continued caution about the risk of lower-rated credits. “We would suggest investors think carefully about the positions they hold and whether they are being compensated for their potential credit risk, illiquidity, declining yields and lack of transparency.”