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There is a wide range of possible outcomes for financial markets in 2026.
Published Dec 19, 2025 • Last updated 11 hours ago • 2 minute read
Mike CandeloroArticle content
Current consensus expectations sourced by Bloomberg point to a modest 2026 for U.S. equity gains, but the key risk to understand about the consensus forecast, is there is an unusually large distribution of outcomes that have been used to calculate the consensus expectation forecast, meaning the average return has been calculated using very wide and differing views from individual strategists as to the direction of markets next year — both positive and negative! In mathematical terms, the average expected rate of return for the U.S. equity market this year has been arrived at using a very wide distribution of possible outcome forecasts. This suggests actual expected returns for the U.S. equity market may actually end up quite different than the aggregated forecasted average.
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A “positive return” outcome for equities depends on the major economies, especially the U.S., avoiding recession and the current consensus forecast for GDP, earnings growth, inflation, and interest rates to be close to consensus forecasts. The latter factors for this upcoming year are quite uncertain for 2026 which makes the conditions necessary for the S&P 500 to deliver mid-single-digit returns plus dividends in 2026 highly uncertain.
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Specifically, the conditions for positive returns, include some slight further moderation in inflation allowing another cut or two from the Fed, resilience in business and consumer confidence, the positive lagged effect of monetary easing, and tax-friendly fiscal policies. If all this falls into place these conditions should help boost U.S. GDP and earnings growth, and thus allow the U.S. stock market to post positive returns.
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AI is also very important to U.S. GDP growth expectations because of the dramatic size of big developers’ capital spending. Though AI capex will continue to be sizable, its growth will likely slow in 2026, and spending could ultimately run into power-generation constraints.
Outside of the U.S., most developed economies are running stimulative monetary and fiscal policies. Governments are increasing defence spending and central banks are cutting interest rates. They are also faced with many similar challenges, including anemic GDP growth, trade uncertainties, mounting fiscal debt burdens, and fraught politics.
The S&P 500 and large-cap indexes in Canada, Europe, and Japan are all trading at price-to-earnings multiples above their long-term averages. Delivering above-average equity market gains from here would require an unusual confluence of market-friendly economic, inflation, and interest rate conditions, which in my view is unlikely.
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In Canada, the recent federal budget in which the government proposed CA$280 billion in increased spending and capital investments over five years could provide a further tailwind to the S&P/TSX. Bank of Canada Governor Tiff Macklem has signalled that the central bank has likely ended easing monetary policy for now, however.
Given my above view, portfolios should be invested up to but not beyond a predetermined long-term equity exposure with a plan for becoming more defensive if called for!
Mike Candeloro, Senior Portfolio Manager and Wealth Advisor with RBC Dominion Securities and the head of The Mike Candeloro Wealth Management Group supplied this article. RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities, which are affiliated. Member CIPF. Mike can be reached at Michael.candeloro@rbc.com You can also visit his website at www.michaelcandeloro.com To read Mike’s archived articles please visit Mike Candeloro / Special to The Nugget | North Bay Nugget
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