Evercore strategist reveals 10 potential market surprises for 2026

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Markets

Evercore ISI strategist Julian Emanuel outlined potential market surprises this year,

“What Could Surprise in 2026: The better question is … With all the Surprises the Bull Market withstood in 2025 and the whirlwind in the first two weeks of 2026, have we as investors lost the capacity to be Surprised by anything as Donald Trump starts Year Two of his Second Term? Market measures of Surprise/Volatility, whether VIX in equities, MOVE in interest rates, Credit Default Swaps, or FX volatility indices all remain near post[1]Pandemic lows. This as seismic changes to geopolitical relationships are evolving and contentious U.S. Midterm Elections loom as the subtext to every action and reaction from Washington. Whether it is complacency, anesthesia, or a logical response to a strong Economy driven by the prospect of an AI led Productivity and Capex boom, 2026 will be a year of More Surprises and we expect More Reaction to those Surprises. Like the fireworks that will light the National Mall on July 4, 2026, America’s 250th Anniversary, investors will once again navigate Financial Market Fireworks. In that spirit, we list what we believe could be some of the most important Surprises in the Year Ahead. The list is made in order of what we believe are the highest probability outcome Surprises at the top. We leave the job of assigning the probabilities to You while at the same time, we recommend an investment strategy to capitalize on the occurrence of each Surprise listed”

“The possible surprises are one, a 10 per cent or higher S&P 500 gain (buy AI-related stocks to benefit). Two, AI-centric communication services, consumer discretionary and infotech cpntinue to outperform (buy XLC, XLY, XLK) and three, the Fed remains on hold (buy Russell 2000 tracking ETFs). Number four is that the biggest stocks in the S&P 500 grow to over half the benchmark’s market cap (buy hyperscalers) and five is no VIX spikes above 30 (buy Nasdaq tracking ETFs). Number six is regime change in Iran (buy U.S. oil stocks) and number seven is Greenland comes under U.S. control (buy EURUSD and European large caps). Number eight is that the Democrats gain control of both houses of Congress (buy U.S. defence stocks), number nine is the ten-year Treasury yield surging over 5.0 per cent (short longer term bonds) and number ten is a U.S. recession (short junk bonds).”

Funds

BofA Securities monthly global fund manager survey (FMS) is done and investment strategist Michael Hartnett summarizes the results,

“Most bullish FMS since Jul’21; global growth expectations surge, cash levels at new record-low 3.2 per cent, protection against equity correction lowest since Jan’18; BofA Bull & Bear Indicator at hyper-bull 9.4 says increase risk hedges & safe havens … Growth & profit optimism surge; net 38 per cent expect stronger economy, highest since Jul’21; expectations for “boom” highest since Sep’21, for “recession” (9 per cent) lowest since Jan’22; no landing (49 per cent) now investor base case … FMS Contrarian Trades: long cash/bonds-short commods/stocks, long IG-short HY bonds, long staples-short banks, long energy-short pharma, long UK stocks-short EM”

Greenland

Citi strategist Adam Pickett outlined the potential scenarios in Greenland,

“The US-Greenland saga intensifies, so we look at four key questions: 1/ Plausible scenarios in which US can assume control of Greenland; 2/ EU retaliation options; 3/ IEEPA Supreme Court ruling vs US tariff threat; 4/ What’s the trade? We expect protracted negotiations with low likelihood of military intervention, negotiations to include meaningful EU threats of using the Anti-Coercion Instrument, the Supreme Court to undercut Greenland tariffs by ruling IEEPA unlawful but for the US administration to use alternative avenues. Bund 2s10s could potentially steepen and play catch-up (relative to EU defence stocks, SEK FX and gold). Even if short-term geopolitical tensions reduce, the incentive for further EU defence spending in the medium term has increased permanently. This also makes the EURUSD FX implications complicated ...

“The obvious trades are at local highs: Eurostoxx defence vs Stoxx600, SEK FX and gold have all been popular expressions of greater geopolitical pressure in Europe and the risk of more defence spending. The equity ratio needs no explaining. Sweden has one of the largest economic exposures to defence products and services as percentage of GDP ”.

Saab AB is the dominant defence contractor in Sweden.

Bluesky post of the day

Diversion

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