2025 was an exceptional year. Canadian, U.S., European and global stock indices hit numerous all-time highs. So did gold, bitcoin and most artificial intelligence (AI) thematic stocks. For instance, baskets of AI leaders rose over 50%, non-profitable technology stocks surged more than 70% and quantum computing plays are close to 100% higher this year.

There were many factors driving what I like to call the “great melt-up.” Falling central bank interest rates across the globe, record-breaking fiscal stimulus programs in the U.S. (the One Big Beautiful Bill Act) and, of course, a once-in-a-generation corporate technological spend in AI infrastructure are all part of the equation.

However, as we look ahead, we believe investment returns will moderate. The S&P 500 Index has seen a three-year growth rate close to 25% per year. There are only three periods when returns were this strong: 2025, 2021 and during the dot-com boom (1998–2000). To be clear, we are not calling for the great melt-up to be followed by the great meltdown as there are too many positives in the macroeconomic environment. Going forward, we expect market returns to be more fundamentally driven by earnings growth, not multiple expansion. Perhaps we can call it the great moderation.

The next chapter begins

There are many other changes that investors will need to navigate. In fact, 2026 and beyond will ask for something new from investors. The world we have known for four decades, where global trade was a tailwind for global economic growth and lower inflation, steady geopolitics created a “peace dividend,” and baby boomers drove investment and economic growth, is structurally shifting. This is true for many longer-term investment trends. Globally, long-term interest rates in the U.S., Japan and the U.K., among others, have broken out of their decades-long downward trend. On the currency front, the U.S. trade weighted dollar looks to have peaked after a 10-year bull market.

Climate volatility, once distant, is now a constant source of cost and disruption. Extreme weather is becoming more frequent and expensive, forcing countries to spend heavily on infrastructure. Technology, led by AI, is both an opportunity and a disruptor, driving a new wave of productivity investment while reshaping work and social balance. These are not short cycles. They are secular transitions. Investors are now navigating a world that is still growing but under new rules.

Short-term momentum remains strong

Central banks will likely keep monetary easing through 2026, and fiscal spending remains heavy. In the U.S., new tax rebates and record AI investment should keep economic growth above trend. Canada’s budget targeted productivity and infrastructure, which is a step in the right direction. Those supports explain why markets remain firm and corporate earnings are solid.

That momentum, however, comes with challenges. The same policies that keep growth strong also keep inflation sticky. High valuations, rising long-term bond yields and elevated public debt point to a system that looks stable on the surface but is increasingly stretched underneath. Governments are spending aggressively in good times, leaving less room to act when the next shock hits.

Opportunities in transition

In a rapidly changing environment, balance, quality, discipline and active management matter more than ever. Building a high-quality portfolio remains the best way to manage uncertainty and capture opportunity over time. Success will come less from reacting to market noise and more from designing portfolios that can succeed across vastly different conditions.

Diversification is still key, but it is evolving. The traditional stock-bond offset is not broken, but it is less predictable. Periods when both move in the same direction, as we saw in 2022, can happen again. That means investors need to think beyond the traditional stock-bond diversification and incorporate other exposures such as gold, infrastructure and alternatives that respond differently to inflation, growth and policy. This is where active management can play a critical role.

In equities, dispersion across regions and sectors creates opportunities. Going forward, policy cycles are diverging, trade blocs are re-forming and regional shocks will likely appear more often. A weaker U.S. dollar could support resource-linked and emerging markets after years in the background. Renewable energy and climate adaptation is attracting capital as economies harden infrastructure and secure supply chains. Companies positioned for these shifts stand to benefit. Over the past three years, active managers lagged major benchmark indices, as growth was concentrated in a few mega-cap companies. However, strong fiscal and monetary stimulus should help earnings growth broaden to other areas of the market, which should benefit active managers.

In fixed income, asynchronous central-bank paths, with monetary policy easing in the U.S., tightening in Japan, and Canada and Europe waiting, are creating differences in yield and currency dynamics between regions. These conditions allow active managers to add value through thoughtful positioning across regions, credit quality and duration.

The pace of change in interest rates, demographics, technology and geopolitics is accelerating, making a return to “normal” unlikely. The rules that worked for 40 years may not guide us through the next five. But investors who adapt early, broaden their sources of return and stay flexible will be positioned to turn volatility into opportunity. In 2026, investors can adapt by building portfolios that respond to the realities of the current world and thrive in an era of change.

At NEI, we have the advantage of access to active managers across asset classes globally, each with deep expertise in their areas. That breadth and depth give us the ability to navigate a world in transition, adapt to shifting market dynamics and uncover opportunities others might miss. In addition, our team at NEI continues to focus on what matters most: understanding evolving markets, staying ahead of key developments, and using the right tools and insights to meet investor objectives in a world that does not stand still. These are the strengths we rely on to deliver value for investors when the old playbook no longer applies.

We hope 2026 proves successful for you and that our 2026 Market Outlook helps guide you on the right path to performance. In the following pages, you will find insights from our sub-advisors from around the globe. We are confident that their perspectives on markets and asset classes will offer valuable guidance for navigating the year ahead.

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