In local currencies, fully 35 of 47 nations in MSCI’s All-Country World Index hit all-time record highs in 2025. Thirty of those came in the fourth quarter, including Canada.Richard Drew/The Associated Press
Bears remain shocked as if their fingers were in a light socket. A huge 2025 few foresaw delivered 30-per-cent TSX gains and double-digits for the MSCI World Index. Up next? Another positive year!
Don’t expect 2025’s huge gains to repeat. But world stocks should top their 10-per-cent long-term annualized average (including bull and bear markets) while likely lagging history’s 22-per-cent average bull market years. A good year lies ahead, with non-U.S. stocks leading again.
Early in 2025, I said dour sentiment would prime investors for a positive surprise and a better-than-expected stock market, with non-U.S. stocks, including Canada and Europe, leading. So it was! While many presumed President Donald Trump’s tensions with Canada – and subsequent tariffs – would hammer the TSX, the reverse happened: Excessive fear lowered expectations, fuelling a boom. And it wasn’t just Canada.
April’s tariff terror-driven correction reset expectations lower globally, which reality easily exceeded. MSCI’s indexes of eurozone and U.K. stocks soared 33.7 per cent and 27.5 per cent, respectively. Supposedly export-reliant Japan and Emerging Markets jumped also – 18.8 per cent and 27.3 per cent. All beat America’s S&P 500’s 11.9-per-cent in loonies. In local currencies, fully 35 of 47 nations in MSCI’s All-Country World Index hit all-time record highs. Thirty of those came in the fourth quarter, including Canada. Gains were global.
Remember this when someone inevitably claims U.S. tech and AI froth mask an otherwise flimsy market. No! Five of the Magnificent Seven U.S. tech giants actually lagged the S&P 500 in 2025. And reread the preceding paragraph. Canada, Britain and the eurozone aren’t exactly AI and Big Tech hotbeds. But they led.
Many may see huge TSX gains as suggesting just investing at home is “better,” especially given Canada’s understandably patriotic reaction to Mr. Trump’s gyrations. But this is a bias – and risky. The TSX concentrates heavily in banks, energy and materials, leaving big blind spots elsewhere. That helped 2025 returns, and may in 2026 – or not. Eschewing global diversification is wrong-headed. Narrow index booms easily become busts or deliver big lags, like they did in 2024 and 2023.
So why expect a very worthwhile 2026? First, because few do! Big recent gains have stoked spirits … somewhat. Of 69 professional forecasts I tracked for the widely watched S&P 500, only two see U.S. stocks down more than 1 per cent in 2026. Two! Outright pessimists are an endangered species. But tepid forecasts surround the median 9.6-per-cent return in U.S. dollars. That is barely half 2025’s U.S. return!
Opinion: To fix Canada, we must fix our troubled stock market
Decades ago I proved the consensus of professional forecasters never happens one year out. Hence, two probable outcomes: stocks fall … or post above 10-per-cent gains. Fundamentals favour the latter. The global yield curve, a key driver I detailed in May, is nicely steep. It may steepen more if the Fed cuts rates. But cuts aren’t necessary. U.S. loan growth is a strong 5.7 per cent year-over-year, while the eurozone’s hit 3.6 per cent in November, the highest in nearly three years. Canadian business lending has slowed since last spring’s tariff spat but remains positive, rising 3.9 per cent in October.
More lending fuels global economic growth. Yet dour economists keep looking over their shoulders for a trade-related recession, despite the U.S.-Mexico-Canada Agreement (USMCA) exempting more than 85 per cent of Canada’s U.S.-bound exports. Now, after the initial tariff shock and the Canadian economy proving resilient, folks fear USMCA renegotiation. That bakes in lowered expectations. A bullish sign!
Politics? Beyond USMCA, Canada’s 2026 looks quiet. Europe’s too. Britain’s budget rendered smaller-than-previously-feared tax hikes – with implementation largely years out. France could be an exception, as years-long budget fights may topple its government. But this old tale lacks shock power.
America’s November midterm legislative elections will have an impact. Early on, campaign rhetoric from extremist candidates in the primary season routinely spurs fears, causing stocks to grind. Finally, the president’s party almost always loses relative power in midterms, increasing gridlock. Stocks love it. Why? Big legislation often rattles stocks, stoking uncertainty by creating myriad winners and losers. Midterms vaporize that. As Democrats take the House, and maybe the Senate, gridlock’s enshrinement causes relative political placidity. Stocks rejoice. No one seems to fathom this Midterm Miracle, as I detailed four years ago.
In U.S. dollars, America’s S&P 500 usually suffers disappointingly meagre returns in the first three quarters of midterm years. But in the fourth quarter, stocks celebrate midterms – and the expected gridlock – rising in 84 per cent of history’s midterm years by an average 6.4 per cent in the final quarter. They climbed in 88 per cent of the next two quarters.
Europe and Canada benefit, too. Developed markets normally parallel one another. What is good for U.S. stocks buoys the world.
Geopolitics, U.S. Fed chair uncertainty, Trumpian gyrations and more can still stoke volatility. A brief correction, like last April’s, is always possible. And the world isn’t risk-free. Be patiently bullish, but not ebullient, in 2026.
Ken Fisher is the founder, executive chair and co-chief investment officer of Fisher Investments.