1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 124
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
While valuations are justifiably elevated for hyperscalers and technology companies, they
remain depressed for consumer goods companies
27.5
26.8
23.1
25.1
26.8
24.2
20.7
15.7
Hyperscalers
S&P 500
Current
Consumer goods
5-year average
S&P 500 Technology
sector
Source: Bloomberg Finance LP, Scotia Wealth Management. NTM P/E ratios from December 31, 2025. Hyperscalers P/E ratios reflect an equally weighted average
of AMZN-US, GOOGL-US, ORCL-US, MSFT-US and IBM-US.
We also see continued outperformance from companies with exposure to increased
government spending on infrastructure and defense projects. This driver is expected to persist
for a few years as governments position for an evolving geopolitical and trade environment.
However, uncertainty also remains for companies exposed to fiscal expansion as many
governments face growing deficits, rising debt levels, and weak mandates from voters.
On the consumer side, the risk mix is shifting in a different direction. Despite some weakness in
labour markets, tariff and trade tensions that weighed on sentiment in 2025 are fading from the
foreground, and policy normalization should keep borrowing rates steady or lower for many
regions. With hard-landing and recession scenarios no longer the central market narrative, the
focus is turning to how much of the ongoing recovery ultimately reaches low- and middle-income
households, and how quickly any relief on rates filters through to mortgages and consumer credit.
The factors that are setting the stage for equity performance in the next few quarters are
further complicated by a backdrop of elevated valuations globally (exhibit below). While this
may limit the upside potential for equities broadly, we see the earnings growth driven by the
unprecedented wave of AI related and government spending supporting the higher valuations for
many companies.
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