2025 was a year of transition characterized by both global uncertainty and resilience. Ongoing geopolitical conflicts and trade tensions drove market volatility throughout the year, and we expect these uncertainties to carry over into the new year. However, there are a number of emerging themes that leave us feeling encouraged.
As we turn the page to 2026, our focus remains on navigating challenges and uncovering opportunities that drive long-term growth.
Here are some of the global themes we believe will impact markets in the new year.
2026 Macroeconomic Overview
Falling rates, steeper yields and stubborn inflation
We’ve seen a steepening of both Canadian and U.S. yield curves as investors demand a higher premium to hold longer-dated bonds. We expect yield curves to remain steep heading into the new year.
Although the full impact of tariffs in the U.S. has yet to be felt, we are beginning to see a slowdown in economic growth in Canada, despite two rate cuts. A lot of uncertainty continues to hang over the Canadian economy in the new year and we therefore believe the Bank of Canada will not be able to close the chapter on its easing program.
Heading into the new year, we expect that inflation will remain above the 2% target set by the majority of central banks in the developed world. This will continue to weigh on households and likely cause a pullback in spending, which will have broader implications for economic growth and interest rates.
Navigating uncertainty and opportunity for Canadian Equities
A trade deal with the U.S. remains elusive for Canada heading
Gold was a key driver of performance for the S&P/TSX Index. We continue to have a constructive view on gold prices over the long term but do anticipate some volatility in the new year.
To date, we have not seen a sizable impact from the tariffs in the U.S. With the midterm elections taking place towards the end of 2026, there’s good reason to anticipate policies supportive of domestic growth in the new year.
We expect that the U.S. will continue to be a beneficiary of the emerging space economy in 2026 and beyond. This, coupled with the growth opportunities in AI leaves us feeling optimistic about emerging industries and technologies in the U.S.
We are encouraged by the rapid adoption of nuclear energy. In addition to this, we will continue to monitor the pace of oil production across multiple basins and natural gas export volumes out of the U.S.
Pockets of growth and resilience in the global economy
Despite the shadows cast by tariff uncertainty, we see reasons for optimism in the global economy. We are encouraged by a number of factors, such as advancing technological innovations in both electric vehicles (EVs) and Generative AI, a recent rebound in luxury goods sales in China, as well as Japan’s newly elected Prime Minister.
Europe is still suffering from anemic growth, and we don’t expect to see a material change in the new year. However, we continue to see opportunities in a number of global blue-chip companies with defendable competitive advantages, excellent management teams, healthy cash flows and strong balance sheets- what we call “Global Champions”.
These are some of the themes the Empire Life Investment team will continue to monitor in 2026. In this special annual report, we will take a deeper dive into these themes and how they will impact the markets in the new year.
This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decisions.
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Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. is the Portfolio Manager of certain Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company.
December 2025