We hope the new year is off to a good start. Before looking at 2026, we would like to review the year that was. In 2025, U.S. politics dominated the headlines. Tariffs were introduced and volatility in financial markets ensued as investors struggled to fully comprehend their potential impact. The leadership in Canada also changed, albeit with the Liberal party remaining at the helm. Despite heightened trade frictions globally, financial markets behaved rather “normally” and the year ended with equity markets for the U.S. and Canada marking new all-time highs.  

Recession fears percolated throughout the year, yet the global economy managed to expand at an estimated 3.0% pace. The downtrend in inflation rates appeared to be on pause and threatened to reverse course, with central banks taking a “wait and see” with the future direction of interest rates. Meanwhile, the U.S. Federal Reserve maintained their easing cycle up until recently as concerns over the labor market outweighed the inflation fears. 

 In this newsletter we will focus on the following themes: 

1. Canadian performance: The TSX had its best year since 2009 – Unpacking that performance
2. U.S. Performance: Artificial Intelligence, and U.S. mega-cap tech stocks concentration
3. U.S. Performance: Oil, Geopolitics & Venezuela Implications (Capital Group Analysis)
4. Global market performance: A possible thematic rotation out of the U.S.
5. Fidelity and BMO’s 5 Questions and Themes for the year.
6. After three strong years of returns, how do you position your portfolio in 2026?
7. Investor Behaviour: Staying Disciplined When It Matters Most 

1. Canadian performance: The TSX has its best year since 2009 – Unpacking performance
Global equities posted decent returns with the TSX, Canada’s benchmark, among the performance leaders. This performance was not the result of a broad rally among the 218 members of Canada’s flagship equity index. On the contrary, the majority of 2025 gains came from three segments that accounted for only about one-third of the S&P/TSX’s market cap at the beginning of the year: banks, gold miners, and Shopify. 

The S&P/TSX benefitted from the spectacular annual performance of Materials (+100%), in an environment of sharp price increases for gold and several other metals (copper, silver, etc.).

 

 

2. U.S. Performance: Artificial Intelligence, and U.S. mega-cap tech stocks concentration
Semiconductors led in 2025, with the Philadelphia Semiconductor Index far outpacing the Magnificent 7, NASDAQ-100, and S&P 500, reflecting continued AI- and data center-driven capital expenditure (capex) strength rather than broad-based equity multiple expansion.

Mackenzie Investments released an article in December titled “The AI Buildout: Boom or Bust?” with the key points as follows:

• The global economy is witnessing an unprecedented race to deploy roughly $7 trillion toward AI infrastructure.
• It is entirely possible that the scale of infrastructure being built will exceed near-term AI demand.
• The timeline for AI to transition from a request-response model (akin to search engines) to an agentic-workflow model (assigning tasks and returning complete solutions) remains uncertain.
• As with other technological breakthroughs (such as Edison’s mastery of electricity) many future AI applications may only be clear in hindsight.

 

 

3. U.S. Performance: Oil, Geopolitics & Venezuela Implications (Capital Group Analysis)

The following analysis is courtesy of Capital Group equity investment analyst Darren Peers, international policy advisor Tom Cooney, investment director Jayme Colosimo, and fixed income investment director Harry Phinney:

The capture of Venezuelan President Nicolás Maduro represents a significant geopolitical development, yet financial markets have reacted calmly. Oil prices remain stable, and investor sentiment suggests a focus on longer-term consequences rather than short-term volatility.

Although Venezuela holds the world’s largest proven crude reserves, it currently accounts for less than 1% of global oil supply. Years of sanctions, mismanagement, and economic decline have reduced production to roughly 750,000–1 million barrels per day, well below the country’s historical peak of more than 3.5 million barrels per day. Even under a potential regime change, restoring output would take time and require substantial capital investment and operational certainty. Major players such as Chevron are unlikely to deploy billions of dollars without a clear and durable political framework.

Key Takeaways

• Geopolitical strategy: The removal of Maduro aligns with the U.S. National Security Strategy released in November 2025, which emphasizes U.S. dominance in the Western Hemisphere. Rather than immediately restoring democratic governance, the current approach allows the existing regime to remain in place under Maduro-aligned leadership. During an undefined transition period, the U.S. intends to exert strong pressure on the interim government to reduce drug trafficking and migration, limit the influence of foreign adversaries (notably China, Russia, and Iran), and prioritize U.S. firms in Venezuela’s energy sector. The brief, targeted military operation reflects the Trump administration’s preference for swift action, minimal risk to U.S. personnel, and avoidance of prolonged overseas deployments.
• Resource outlook: Even in a best-case scenario, rebuilding Venezuela’s oil sector will take several years. Energy production requires long-term visibility to justify large capital commitments. Beyond oil, Venezuela’s gold reserves and other mineral resources add to its strategic significance.
• Emerging market dynamics: Venezuelan sovereign bonds are rallying on expectations of debt restructuring. While a smoother political transition could create investment opportunities, risks related to governance, infrastructure, and corruption remain elevated.
• Global ripple effects: Immediate spillover into Asia appears unlikely, and China is not expected to accelerate actions related to Taiwan. Iran, however, may adopt a more confrontational posture, increasing the likelihood of future U.S. military engagement.

It is also important to note that Venezuela has limited trade ties with its Latin American neighbours. Much of its oil exports are directed to China as repayment for long-standing debt, raising the possibility that China could seek compensation if U.S. influence over Venezuelan oil exports increases. In the near term, political and humanitarian considerations are likely to overshadow economic fundamentals.

Overall, this episode reinforces a broader theme: geopolitical shocks do not always spark immediate market disruption, but they can meaningfully alter risk profiles and investment strategies over time.

 

4. Global markets outperform – A possible thematic rotation out of the U.S.

2025 performance reflects a rotation away from concentrated U.S. mega-cap growth toward Europe Banks, Gold, and Copper and and a reduced “U.S. exceptionalism” premium as global assets outside the U.S. became more attractive on valuation and carry grounds.

 

 

 

5a. Fidelity’s 5 questions for 2026

The Fidelity Global Asset Allocation team answers 5 key questions heading into 2026:

1. Is AI a bubble?

• The impact of AI will likely shape market direction in 2026, but it’s too early to say if it’s a true transformation or a temporary mania.
• Fidelity’s approach is to remain moderately overweight equities, favoring growth managers who can capitalize on AI trends, while controlling risk through selective short positions.
• Diversification is maintained, with investments in regions and sectors less dependent on AI, plus fixed income and alternatives for stability.
• Ongoing close collaboration with equity analysts ensures readiness to adjust positions if the earnings outlook changes.

2. What are your concerns around the U.S?

• Political risks—especially threats to Federal Reserve independence—could undermine the dollar’s global status.
• Fidelity has eliminated its long-standing overweight to the U.S. dollar, diversified into other currencies (euro, yen), and increased gold holdings as a hedge.
• Direct holdings of U.S. Treasuries have been reduced, with a shift toward more attractive opportunities globally, including renewed focus on Canada.

3. Things don’t feel great in Canada. Why do you sound optimistic?

• Canada’s fundamentals are improving: GDP growth rebounded, unemployment fell, and business optimism is rising.
• Federal Budget’s focus on investment and productivity is a positive step, though execution risks remain.
• Fidelity has closed its underweight position in Canadian assets, capturing recent outperformance, and will consider further allocation based on ongoing economic trends.

4. How are you thinking about alternative asset classes and evolving the 60/40 portfolio?

• Traditional stock/bond portfolios have become less efficient due to increased correlation, especially with inflation uncertainty.
• Fidelity has added both liquid and illiquid alternatives to client portfolios, including Canadian commercial real estate and specialized stock selection strategies.
• Research agenda for 2026 includes evaluating new alternative strategies to enhance diversification and long-term returns.

5. How are you approaching the recent rise in geopolitical risk?

• Geopolitical risks are unpredictable, but Fidelity’s disciplined asset allocation process focuses on policy impacts, not politics.
• Risk management remains a priority, with gold held as a hedge against uncertainty.
• Team is prepared to adjust portfolio positioning quickly and decisively if conditions warrant.

5b. BMO’s 5 Themes for 2026

Key takeaways

• Five key themes will drive returns through the balance of 2026
• BMO remains constructive on equities over the next 12 months
• Exposure to underinvested Emerging Markets (EM)
• Diversification across sectors will be imperative as noise continues around AI themes
• Search for yield will be important as we believe returns will not be as strong as 2025 thus favouring dividend-oriented stocks
• Fixed Income returns could prove muted, warranting selective yield pick-up as well
• Gold’s utility as a hedge against multiple risks should increase

You can read the full report here.

 

6. After three strong years of returns, how do you position your portfolio in 2026?

Although there are encouraging signs for the year ahead, clear risks are on the horizon, suggesting that investors should prepare for potential market pullbacks.

There are several tried and tested way of managing market risk:

-Reallocate to fixed-income
-Focus on higher quality (blue-chip) equities
-Within the equities space, consider low-volatility or dividend-paying equities
-Diversification (by sector, geography, asset class)
-Alternative mandates (long-short strategies)

In all likelihood, your portfolio is constructed with these ideas in mind. Those of you with shorter investment timelines and/or more conservative risk tolerance will have higher exposure to these risk management solutions. Those of you with longer timelines and/or more aggressive risk tolerance will have less exposure to them. The key take away is to proactively – rather than reactively – plan around these strategies.

If you have any questions on your portfolio strategy, please contact us anytime.

 

 

7. Investor Behaviour – Staying Disciplined When It Matters Most

The choices we make when markets are calm certainly matter. But the choices we make when markets feel uncomfortable matter far more.

Staying invested when headlines are unsettling. Rebalancing when it feels counterintuitive. Continuing to save when optimism is scarce. These decisions rarely show up in short‑term performance tables, yet they quietly compound into long‑term success.

Most investors already hold portfolios that are “good enough” on paper to reach their goals. The real risk usually isn’t a flawed strategy—it’s abandoning a sensible plan at exactly the wrong moment.

History makes this clear. Markets have rewarded patience over time, not perfect timing. Long‑term results have belonged to investors who stayed the course through uncertainty, not to those who tried to sidestep every downturn or chase every opportunity.

That’s why behavior plays such a critical role in outcomes. It determines whether volatility becomes a temporary inconvenience or a permanent setback. Two investors can own the same portfolio and end up in very different places, simply because one remained disciplined while the other reacted emotionally.

Good investing isn’t about being fearless. It’s about being prepared – knowing that markets will decline, headlines will darken, doubt will surface – and having a plan built with those moments in mind.

Feeling uncomfortable isn’t a sign that something is wrong. It’s a sign that you’re participating in the process. The goal isn’t to avoid discomfort – it’s to prevent it from driving decisions.

When we stay focused on the long-term picture, the rest tends to take care of itself.

Please do not hesitate to contact us to discuss anything further.

Have a wonderful year ahead!

 

Sources: BMO GAM, Capital Group, Fidelity Investments, Mackenzie Investments