Rising risks and hidden opportunities drive 2026 markets

Global markets showed resiliance in 2025, even as economic and tariff uncertainties lingered, says David Wong, group chief investment officer, CIBC Asset Management.

Canadian stocks returned about 30%, the EAFE Index was up about 24%, and emerging markets were up 26% during the first 11 months of the year, he said in a Dec. 8 interview. And while the U.S. has shifted away from being a global leader in equity markets, the Mag Seven outperformed the index, up about 23% in early December.

“The year was a perfect reminder of why it’s so important to stay disciplined in our portfolios, and stay diversified in our strategies,” Wong said.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

With the new year right around the corner, Wong said the headlines remain the same — tariffs are a key issue as CUSMA/USMCA comes up for review mid-year; conflicts in the Middle East are still unresolved; and investors are concerned about equity market valuations.

“Against this backdrop, it’s hard to find the obvious bargains out there with valuations above historical levels across the equity markets around the world,” he said.

On a positive note, earnings growth has justified the rise in stock prices, Wong said. Nvidia is one example. Its stock has surged over the past three years as AI took off, he said, and its earnings have kept pace with those gains.

“We’ll need to see a similar path of earnings growth for stocks like this to continue to do well,” he said.

There could be potential value in underperformers. For instance, Canadian industrials, real estate and healthcare returned about 2% this year, he said. “So it’s giving bargain hunters some opportunities to turn over some stones.”

In the U.S., the S&P 500 equal weighted index, which offers broader diversification, has recently underperformed the market cap-weighted index, which is heavily concentrated in the top 10 names, Wong said.

“The difference between those indexes is about 9.9% annualized in favour of the market cap-weighted version of the index over the last three years.”

This gap hasn’t been seen since March 2000, Wong said, when the market cap-weighted index led by over 10% before the trend shifted in favour of the equal weighted index for years.

“So it’s not that the AI story isn’t exciting, which is represented in that market cap-weighted index in a very concentrated way,” he said. “It’s just that after a certain point, the math on the winners becomes challenging.”

And this is why diversification and active management are key in 2026, Wong added.

Looking to fixed income, he said investment-grade bond yields remain high. Canada’s 10-year government bond yield also remains high at around 3.3% to 3.4%, far above the 1% levels of five years ago.

“In 2025, we started seeing bond yields really act as a diversifier against equity markets,” Wong said. “If risks pick up in 2026, and there’s a flight to quality, there could be some decent diversification potential from bonds at these levels.”

One key risk to watch is the potential “vibecession,” which reflects an economy that appears stable, yet leaves many facing higher prices and limited job prospects, he said.

Further, the speedy adoption of AI in the labour force could trigger a period of adjustment that the economy will need time to absorb, Wong said.

“We don’t know the exact amount that AI will ultimately impact earnings. We believe it will be positively impactful, and potentially in a very big way for the economy.”

So invest according to your liquidity needs, and use diversification as the primary hedge, Wong said.

“Keep in mind that a disciplined plan that emphasizes a return that compounds over time, rather than trying to speculate in a binary way, is a time-tested approach for building wealth towards your goals.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.