Beyond AI, housing and industrials are set to surge

Despite ongoing volatility due to geopolitical risks, the Canadian economy remains robust, with manufacturing recovering and the policy environment remaining supportive, says Natalie Taylor, portfolio manager, CIBC Asset Management.

“We’re starting to see the lagged effects of policy rate cuts starting to stimulate growth here,” she said in a Feb. 12 interview. “Fiscal stimulus continues to underpin economic activity as well, both in Canada and the U.S.” 

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

There’s also strong economic momentum from the AI theme, with rising hyperscaler capex fueling data centre construction, and accelerating adoption of AI technologies, she said. Strength in industrials and consumer discretionary is also contributing to economic growth in Canada.

While all of these factors are helping to create a supportive backdrop for equities in 2026, there are some areas of tension due to the tech sector, she said. Narrow AI leadership in 2025 drove sharp declines in some companies viewed to be AI losers, mainly software firms, which sold off 20% to 50%. That weakness has continued into this year.

“We’ve seen the AI disintermediation label broaden out to start 2026,” Taylor said. “It’s extended to a number of other businesses, like engineering and construction, real estate brokers, insurance brokers, asset managers, all types of business service companies, and we’ve witnessed significant erosion in value from that threat of AI.”

As a result, Taylor is focused on opportunities outside of the AI theme. One example is housing, which she said has been underbuilt in Canada and the U.S. since the financial crisis.

“Affordability is starting to be an issue,” she said. “Now that we’re in a period of lower interest rates — we’ve seen some cuts by the Bank of Canada and the Fed — we’re expecting affordability to improve somewhat, and interest in housing to return.”

Taylor said many sectors would be positively impacted if demand for housing picked up. That includes building materials, construction, retailers, transportation, rail and the financial sector.

Another area of opportunity is the industrial sector, she said. “We’ve been in a freight recession for over three years now, as capacity had been built up during Covid, and we’re seeing signs that some of that capacity is coming out of the market, and some demand is returning.”

The chemicals industry often signals industrial growth, Taylor said. After a period of challenges, supply is beginning to rationalize, and there are early signs of improving demand and activity, which highlights the cyclical rebound.

“On the more secular side of the industrial sector, we’re seeing generational growth in spending on defense,” she said. “And there are a number of companies within Canada and the U.S. that would benefit from that as well, including aviation companies, space companies and engineering and construction.”

Within commodities, Taylor continues to own high-quality gold companies that operate in safe jurisdictions for diversification, downside protection and risk management. But she remains cautious as gold companies’ returns are becoming more closely tied to the overall market.

“We don’t expect gold to provide the same downside protection or negative beta as it otherwise would have in other market backdrops,” she said.

Meanwhile, copper demand has grown due to rising power and electrification needs, but supply has been temporarily reduced by various mining disruptions, she said. “We believe that a number of these mines are positioned to restart in 2026, and the supply deficit will be less acute as a result.”

Taylor said energy is currently one of the best performing sectors in Canada, as of mid-February. This is the third quarter in a row that energy has outperformed the commodity itself.

“We don’t view this multiple expansion as sustainable, as energy stocks have always been significantly correlated with the underlying commodity over time, and we expect that to continue in due course,” she said.

Taylor remains selective about energy exposure. She favours integrated companies with lower exposure to heavy crude differentials that are focused on operational improvements, such as Suncor.

“We also have exposure to gas infrastructure companies, including TC Energy and Keyera,” she said. “We view them to be less vulnerable to heavy oil price swings, and have a significant growth driver in power generation growth.”

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