1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 128
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
TSX Composite Sector-Level Consensus 2026 EPS Growth Outlook
Real Estate
54.0%
Materials
46.0%
Utilities
19.0%
Healthcare
17.0%
Technology
17.0%
Industrials
15.0%
Discretionary
13.0%
Staples
11.0%
Financials
9.0%
Communications
Energy
3.0%
-1.0%
Sources: Bloomberg Finance LP, Scotiabank GBM, Scotia Wealth Management
While stock selection remains grounded in core bottom-up fundamental research, momentum
factors increasingly influence equity performance. Price momentum – often measured by
indicators such as the Relative Strength Index (RSI) – and earnings momentum, captured by
changes in EPS estimates, can materially impact returns. Overly optimistic assumptions raise the
risk of downward revisions, creating negative momentum that can weigh on performance.
Performance in 2026 is expected to be driven by structural growth tailwinds and global
economic strength, supported by Canadian companies’ significant non-domestic footprints.
Earnings growth should continue, fueled by AI-driven productivity gains and power demand buildout. We are focusing on companies with sustainable competitive advantages, pricing power,
downside protection, visionary management teams, and strong balance sheets. Catalysts to
monitor include the USMCA review scheduled to formally begin in July 2026, a gradual recovery
in Canadian housing, tariff-related inflation, increased defense and infrastructure spending,
alleviation of trade uncertainty, and quantitative evidence of AI productivity gains.
Diving deeper into U.S. related impact factors, the USMCA review could be influential as it
introduces potential volatility for sectors tied to cross-border trade – particularly autos,
industrials, and agriculture, where adjustments to rules of origin or procurement standards could
reshape supply chains. Industrials – already pressured by freight weakness – could benefit if trade
flows remain intact, while any tightening of content requirements may increase manufacturing
costs. Energy infrastructure stands to gain from continued protection of cross-border energy
trade, reinforcing the strategic importance of pipelines and midstream operators. Conversely,
renewed disputes over softwood lumber or dairy access could weigh on select materials and
consumer staples names.
Secondly the U.S. midterm outcomes may influence fiscal priorities. Infrastructure spending and
defense procurement could provide modest tailwinds for industrial suppliers and aerospace
names, while clean energy allocations would support renewables and utilities.
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