The year ahead: 2026
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Rates, returns, and the road ahead, with TD Asset Management’s David Sykes
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AS WE step into 2026, the global economy is showing a mix of resilience and recalibration. Even with the uncertainty we saw throughout 2025, corporate fundamentals held strong and investor confidence helped keep equity markets on solid footing. This year, shifting policies, evolving trade dynamics, and ongoing innovation will be big themes to watch − and they’ll require a thoughtful, active approach as we look for opportunities.
In the US, the economy continues to outperform expectations. Consumer spending remains solid, and the job market has proven more durable than many expected in a higher‑rate environment. We’re now looking at US real GDP growth coming in just above 2 percent for 2026. Easing inflation and continued investment in technology and infrastructure − especially reindustrialization efforts − should help support that momentum and influence long‑term growth.
TD Global Investment Solutions (TDGIS) represents the institutional asset management businesses of TD Bank Group – TD Asset Management Inc. (TDAM) and Epoch Investment Partners, Inc. (TD Epoch). TDGIS brings together three decades of investment experience and has a long track record of helping clients meet their investment goals. Our broad selection of strategies and solutions includes fundamental equities, fundamental free cash flow driven equities, quantitative and passive equities, fixed income across the credit quality spectrum and alternatives, such as private credit, infrastructure and real estate. We offer investment solutions to corporations, pension plans, endowments and foundations, insurance companies, sovereign wealth funds, and superannuation, among others, overseeing $527 billion (CAD)1 of investments for clients, including $250 billion (CAD)1 for institutions.
1Aggregate statistics as of September 30, 2025 for TD Asset Management Inc. and Epoch Investment Partners, Inc. Both entities are affiliates and are wholly-owned subsidiaries of The Toronto-Dominion Bank.
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“In Canada, equities outperformed US markets last year, and the setup remains constructive: valuations are attractive, dividends are steady, and sector leadership remains resilient”
David Sykes, TD Bank Group
Here at home, Canada is entering 2026 on a more positive note after a tough 2025. Growth is expected to hover around 1.3 percent, and inflation continues to trend lower. The Bank of Canada’s (BoC) data‑dependent stance has helped stabilize rates, while a stronger Canadian dollar released some of last year’s pressure points. Investments in defence, housing, and infrastructure should support stronger productivity down the road. One area we’re watching closely is the upcoming renewal of the Canada−US−Mexico trade agreement, which could play a meaningful role in shaping business confidence.
Globally, the story continues to be one of divergence. Europe is still working through softer economic conditions, though we’re starting to see the first signs of stabilization. In Asia, growth remains comparatively strong. China met its 2025 targets − no small feat given the property‑sector challenges − and across emerging markets, trends like digital adoption and rapid urbanization continue to fuel long‑term opportunity.
Bottom line: 2026 is shaping up to be a year when active management will be especially important in building investment portfolios. Whether we’re looking at the innovation cycle in the US, energy and infrastructure developments in Canada, or broadening growth across Asia, staying diversified and focused on quality assets remains essential.
Equities finished 2025 with impressive momentum, and we expect that positive tone to carry into 2026. In the US, earnings strength and participation across a wide range of sectors continue to support the outlook − though it’s worth keeping an eye on valuations, especially in the technology sector. Overall, US equity returns should land in the mid‑ to high‑single‑digit range, in our view.
In Canada, equities outperformed US markets last year, and the setup remains constructive: valuations are attractive, dividends are steady, and sector leadership remains resilient. With reasonable earnings multiples, high‑single‑digit returns seem achievable. That said, trade policy developments and inflation trends could introduce some bumps along the way.
International markets produced varied results in 2025. Japan and South Korea benefited from governance reforms and stronger industrial demand, while Europe faced continued headwinds. Emerging markets remain tied to global technology and AI cycles, which present big opportunities but also concentration risks.
Where do we see opportunities?
Productivity gains driven by AI
Diversification across a broader set of Asian markets
Potential upside in cyclical sectors if global growth accelerates
Key risks include elevated valuations, geopolitical tensions, and volatility in tech‑heavy segments.
Alternatives had a strong run in 2025, and they continue to offer compelling diversification.
Infrastructure performed well and is positioned for another solid year, supported by sustained investment in AI‑related buildouts, renewable energy, and industrial expansion.
Real estate also surprised to the upside − particularly in the US, where investors showed renewed interest in high‑quality assets. In Canada, signs of recovery are emerging, boosted by large‑scale projects and supportive policies. While broad‑based returns may be modest, selective opportunities − like grocery‑anchored retail and modernized office space − are gaining appeal.
“In Canada, moderating inflation and stronger corporate balance sheets continue to support the bond market. With the BoC unlikely to move until late 2026, low‑ to mid‑single‑digit returns seem reasonable”
Commodities remain an important diversifier, supported by long‑term demand for metals, energy inputs, and other critical resources. Volatility, however, will continue to be part of the landscape.
Best wishes for 2026 As we look ahead, 2026 presents meaningful opportunities for investors who stay disciplined and keep a long‑term perspective. Markets will evolve − they always do − but the fundamentals of successful investing don’t change: stay invested, focus on quality, and embrace diversification.
A well‑constructed, diversified portfolio can help investors navigate uncertainty and position themselves to participate in growth wherever it emerges − across sectors, geographies, and asset classes. With thoughtful guidance and a commitment to long‑term goals, investors can approach 2026 with confidence and be well positioned to capture the opportunities this year brings.
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Alternatives – finding long‑term value beyond traditional markets
Published February 9, 2026
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The information contained herein has been provided for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.
Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects,” “anticipates,” “intends,” “believes,” “estimates,” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political, and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.
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David Sykes TD Asset Management Inc.
“One area we’re watching closely is the upcoming renewal of the Canada−US−Mexico trade agreement — it could play a meaningful role in shaping business confidence”
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2026 Asset Class Commentary and Outlook
Equities – navigating growth potential
Fixed income delivered stable, income‑oriented results in 2025, and we expect a similar story in 2026.
In Canada, moderating inflation and stronger corporate balance sheets continue to support the bond market. With the BoC unlikely to move until late 2026, low‑ to mid‑single‑digit returns seem reasonable.
In the US, expected rate cuts should help government and corporate bonds alike. We see mid‑single‑digit returns as likely, with high‑quality credit standing out as particularly attractive. Spreads remain tight, so credit selection − especially in high yield − will matter more than ever.
Globally, we’re still dealing with wide policy divergence across central banks, which will require careful duration management and disciplined security selection.
Fixed income – charting a course through evolving bond markets
David Sykes, TD Bank Group
David Sykes TD Asset Management Inc.
“Real estate also surprised to the upside − particularly in the US, where investors showed renewed interest in high‑quality assets. In Canada, signs of recovery are emerging, boosted by large‑scale projects and supportive policies”
“
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