INVESTING BASICS

The global economy is entering 2026 with a combination of opportunities and uncertainties. Economic conditions are influenced by higher interest rates, shifting market dynamics, changes in trade policy, geopolitical developments in regions such as the Middle East, and new legislation affecting businesses and financial markets. At the same time, advancements in artificial intelligence, moderate economic growth in several regions, and evolving labour-market trends may impact various sectors.

Financial markets in 2026 may reflect multiple possible outcomes. Market movements are often unpredictable, and analyses from commentators, economists, and market observers can differ. Understanding economic and financial factors, as well as characteristics of different asset classes, can provide context for interpreting market activity.

This article examines investing in 2026 by reviewing the factors influencing markets and highlighting potential developments across equities, fixed income, and alternative investments.

Reminder: The opinions expressed here are for informational purposes only and do not constitute investment advice. Actual results may differ, and investors should consider their own objectives and risk profile before making any investment decision.

The 2026 Macro Backdrop: Implications for the Global Economy

Many economists expect the global economy to enter 2026 on a gentle glide-path, neither recessionary nor overheating, but noticeably slower than the rapid post-pandemic expansion. Most major regions are settling into sub-trend economic growth, shaped by the cumulative drag of higher interest rates, fading fiscal stimulus, and uneven productivity gains. International institutions such as the International Monetary Fund (IMF) have emphasized a world of “mixed momentum”: pockets of resilience supported by strong labour markets and steady household balance sheets, offset by weak manufacturing cycles and softening global trade.

Risks remain concentrated in three areas. Policy uncertainty continues to loom large as governments navigate strained budgets, shifting industrial strategies, and new legislation tied to climate, security, and technology. Geopolitics, from tensions in the Middle East to evolving US-China dynamics, keeps pressure on supply chains, input costs, and investor sentiment. And trade-related frictions, including renewed tariff policy debates and the possibility of a more pronounced trade war, add volatility to cross-border flows and corporate planning. These market factors, alongside fluctuating U.S. dollar conditions, reinforce the likelihood of differentiated outcomes across regions and sectors.

Canada’s 2026 Outlook

The Bank of Canada’s policy-rate path is projected by many analysts to grow below potential as households and businesses continue adjusting to several years of elevated borrowing costs. While inflation has moderated, it remains sensitive to shelter and wage dynamics. Against this backdrop, the Bank of Canada’s policy-rate path is expected to continue gradually normalizing after its prior tightening cycle, though cuts are likely to proceed cautiously to avoid reigniting price pressures. Fiscal plans, outlined in recent federal budgets, highlight a balance between targeted support and longer-term investment priorities, but also underscore limited room for expansionary policy. For investors, this combination typically means modest domestic demand, a cooler housing market, and a more balanced but slower pace of job creation.

What This Implies for Equities, Bonds, and Cash

Directionally, these macro trends may carry important implications across asset classes. In equity markets, slower global and domestic growth often translates into more measured earnings growth expectations and wider dispersion between large-cap equities, international equities, and emerging markets. Companies with resilient business models, strong pricing power, or alignment with structural themes, like artificial intelligence, may fare better, while cyclicals tied to global trade remain sensitive to macro headlines.

For fixed income, a stabilizing interest-rate environment can improve total-return prospects, especially for intermediate-duration securities. As yields gradually trend lower, high-quality bonds may regain their role as both diversifiers and sources of income.

Meanwhile, cash and short-term instruments, which benefited from the era of peak rates, are likely to see returns drift lower as central banks cut. They will remain useful for liquidity, but investors may need to look further out on the curve to maintain real income.

Overall, the 2026 backdrop seems to call for balance, selectivity, and a watchful eye on evolving global risks.

Common Asset Allocation Trends for 2026

As markets transition into a slower-growth, post-tightening phase, 2026 is emerging as a year where the impact of long-term asset allocation decisions may outweigh that of short-term tactical market calls. With economic fundamentals shifting, moderating inflation, easing but still elevated interest rates, and widening performance dispersion across asset classes, investors can benefit from revisiting their long-term policy mix.

The following are hypothetical examples for educational purposes only and do not represent specific recommendations for your account.

Conservative Profile

A Conservative portfolio typically emphasizes capital preservation, liquidity, and stability of returns.

• Equities (30-40%): Typically split into Canada (10-15%), US (10-15%), and international equities (5-10%) for diversified global exposure.
• Fixed income (55-65%): A larger allocation to high-quality core bonds, complemented by a controlled exposure to short-duration instruments for liquidity and reduced interest-rate sensitivity. Investment-grade credit can add modest yield without materially raising risk.
• Real assets & alternatives (5-10%): Infrastructure, real estate, or liquid alternatives may provide smoother return patterns and lower correlation with traditional markets.

Income Profile

For investors prioritizing steady cash flow with modest growth:

• Equities (40%): A balanced equity sleeve including Canada (6.50%), US (20.41%), and International (13.09%).
• Fixed income & Cash (60%): Heavily weighted toward Canadian debt (approx. 53%) and diversified corporate bonds to support regular distributions.
• Real assets & alternatives (5-10%): Useful for inflation protection, diversification, and exposure to non-traditional economic drivers.

Balanced Profile

For investors seeking a blend of income and growth, a Balanced portfolio typically includes:

• Equities (50-60%): Canada (15-20%), US (20-25%), international (10-15%), striking a balance between home-market familiarity and global diversification.
• Fixed income (35-45%): Core bonds remain central, but with room for selective duration extension if Bank of Canada easing progresses, alongside a sleeve of investment-grade credit.
• Real assets & alternatives (5-10%): Useful for inflation protection, diversification, and exposure to non-traditional economic drivers.

Growth Profile

For longer time horizons and higher risk tolerance, a Growth portfolio leans into equities:

• Equities (70-80%): Canada (20-25%), US (30-35%), international/emerging markets (15-20%) to capture global growth and earnings trends.
• Fixed income (15-25%): Typically shorter in duration to minimize drag during periods of rate volatility.
• Real assets & alternatives (5-10%): Provides additional diversification and potential opportunistic return sources.

Aggressive Profile

Focused on maximizing long-term capital growth with high risk tolerances:

• Equities (99%): Near-total market exposure distributed across Canada (16.09%), US (50.52%), and International/Emerging Markets (32.39%).
• Fixed income & Cash (1%): Minimal allocation, typically held in cash or high-interest equivalents for liquidity and rebalancing purposes.

Investing in Canada

Canadian investors often confront the question: how much “home bias” is appropriate? While excessive concentration introduces concentration risk, maintaining a Canadian core could be practical. Familiar regulatory structures, tax efficiency (such as use of tax-free accounts), and reduced currency volatility all contribute to portfolio stability.

However, many investors still believe that diversification is important because the Toronto Stock Exchange (TSX) is not a proxy for the global economy. According to S&P Global sector analyses, Canada’s market is heavily tilted toward financials, energy, and materials, sectors sensitive to commodity cycles, the labour market, and broader global economy dynamics. Adding US mega-cap technology, European industrials, and Asian consumer or manufacturing exposure helps broaden assets across sectors and geographies, reducing reliance on a limited set of Canadian businesses.

Factor and Style Tilts for 2026

Generally, a more dispersed market tends to reward selective factor exposures. Historical context from MSCI World factor research shows that quality and low-volatility factors often act as shock absorbers during late-cycle phases. Companies with strong balance sheets, steady cash flows, and robust profitability metrics generally hold up better when future events create uncertainty.

Meanwhile, the value vs growth debate remains nuanced. Growth stocks, particularly those tied to artificial intelligence or structurally expanding industries, may continue to lead, but valuations in some segments of the market appear stretched. Value-oriented sectors could benefit if rate cuts improve discount rates or if cyclical conditions stabilize.

A well-constructed 2026 allocation may blend long-term discipline, selective global diversification, and a duration stance adapted to an evolving macro backdrop, helping investors stay focused rather than reacting to short-term market noise.

Offensive & Defensive Tilts

In a market environment that may feature macro volatility, structural transition, and uncertain growth prospects, combining offensive thematic exposure with defensive ballast can help balance opportunity and risk. Below are approaches supported by academic, index-provider, and asset-manager research.

Offensive Tilts: Thematic & Transition-Oriented Allocations

Thematic investing, via exchange-traded funds (ETFs) designed to capture long-term structural trends, offers a way to access themes like AI infrastructure buildup, renewable/transition-economy opportunities, and sector innovation without concentrating risk in a handful of single companies. According to research from BlackRock, thematic exposures carry a higher degree of “unique risk” (risks not explained by traditional factors such as sector, geography, or style) compared with traditional equity exposures. For example, demand for infrastructure, data-centre buildout, and cybersecurity has been highlighted as potential beneficiaries of the ongoing boom in Artificial Intelligence, pointing to opportunities beyond the megacap “headline” AI names.

Using thematic ETFs (rather than single-stock bets) helps spread company-specific risk, avoid over-concentration, and capture a broader swath of firms involved in a theme. BlackRock’s listing of thematic ETFs (e.g., those targeting future tech or infrastructure) demonstrates that thematic vehicles are structured to deliver diversified exposure.

That said, it’s important to recognize the inherent trade-offs: since thematic ETFs carry more “unique risk,” they can be more volatile and more dependent on the theme working out over the long term.

Defensive Tilts: Low-Volatility Equity, Diversification, and Fixed Income

Generally, for investors concerned about macro and interest rate fluctuations, minimum-volatility equity strategies provide a historically more stable alternative to broad equity indexes. According to MSCI research, world minimum-volatility indexes have delivered lower drawdowns than broad global equity benchmarks during major equity market downturns.

Combining quality and minimum-volatility factors, for example, by blending the MSCI Quality and MSCI Minimum Volatility indexes, has demonstrated smoother returns and significantly reduced relative drawdowns compared with either component alone.

In the face of macro uncertainty, such as inflation, interest-rate changes, or geopolitical shocks, such defensive factor tilts can act as a buffer. Recent analysis from MSCI highlights how factors like minimum volatility interact with interest rate sensitivity.

Risks, Guardrails & Mistake-Proofing

Even a carefully designed portfolio can encounter pitfalls without proper guardrails. Concentration and correlation risks are particularly relevant in Canada, where the TSX is heavily weighted toward financials, energy, and materials. Overexposure to these sectors can amplify portfolio swings.

Another common challenge is theme-chasing. Investors may be tempted to overweight trendy sectors or ETFs without respecting position-size discipline. Scenario drift, where actual exposures diverge from original assumptions, can also occur, underscoring the importance of confirming that allocations still align with long-term objectives.

Bringing It All Together: Investing in 2026

Take action today on Questrade: open an account, start or adjust an ETF portfolio, set up automatic rebalancing alerts. Small, structured steps now may help investment portfolios navigate 2026’s evolving markets.