Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 54
THE DRUMMER'S EAR | RHYTHMIC REASONING
Looking ahead to calendar year 2026, Bloomberg consensus
estimates are pointing to healthy earnings growth rates of 11.2% for
Canada. This is down from the June highs of 12.1%, albeit from a
lower expected 2025 base. Gold equities remain a primary driver
of earnings growth for Canadian equities, however, there are other
pockets of strength that position Canadian equities to potentially
outperform in 2026.
On September 11, 2025, Prime Minister Mark Carney announced
the launch of a new Major Projects Office (MPO) to fast-track nation
building projects in response to shifts in the global landscape
and to position Canada more competitively. The first C$60 billion
tranche of projects that have been referred to the MPO for
consideration are (1) LNG Canada Phase 2, (2) the Darlington New
Nuclear Project, (3) Contrecoeur Terminal Container Project, (4)
McIIvenna Bay Foran Copper Mine Project, and (5) the Red Chris
Mine expansion Project.
Any acceleration in the timelines of these projects and subsequent
projects that will be referred to the MPO could further boost
Canadian GDP and earnings growth. We see Canadian equities
benefitting broadly, but more direct beneficiaries are connected
to the country’s energy, materials and industrials sectors, which
represented ~43% of Canada’s broad market benchmark at the
end of the third quarter.
These projects and the beneficiary sectors are tied to two key longterm secular themes that we have identified: (1) Energy Transition
and Resource Scarcity and (2) Infrastructure Spending.
Energy transition and resource scarcity is being driven
by population growth, urbanization, increasing affluence in
developing economies and AI development. These competing
forces are driving greater consumption of natural resources such
as energy, critical minerals, water, and arable land, and Canada’s
resource rich economy stands to benefit. Rising resource scarcity
creates investment opportunities in commodity and natural
resource producers across the energy spectrum and in metals &
mining.
Rising infrastructure spending has been driven by the shortfall
between necessary investments in foundational assets spanning
from transportation and energy grids to digital networks and water
systems. Spending further drives natural resources consumption
and industrial activity.
As we look ahead to 2026, we continue to maintain an underweight
position in Canadian equities relative to other regions. While we
are encouraged by the potential upside to equities in the region
from the secular themes identified above, we note that for now,
the direct beneficiaries to these tail winds are limited to sectors in
the economy that are cyclical in nature or that have limited pricing
power. Compounding risks to the region are valuations that are at
levels that market hasn’t seen since 2021.
U.S. Equities
We have a positive view on U.S. equities heading into 2026,
underpinned by a resilient economic outlook, support from secular
growth themes, and stronger corporate earnings growth. In
addition, clarity on the tariff and trade policy front has improved,
with a clearer picture of which industries may be affected. While
risks remain, and the potential for new tariffs exists, some of the
uncertainty that paralyzed corporate planning decisions earlier in
2025 has dissipated.
In terms of corporate financial performance, 2026 earnings growth
expectations have continued to rise through the year. Overall, the
S&P 500 is expected to post 12.7% EPS growth in 2026 compared
with 8.5% in 2025. Growth is expected to be more broadly based
in 2026, with double-digit earnings growth expectations in seven
of the 11 GICS sectors. By comparison, growth in 2025 has been
led primarily by IT and Communication Services with other sectors
posting low- to mid-single-digit growth.
Fig 4: Consensus estimates for CY2026 earnings
growth have increased since the start of the year
12.4%
11.8%
12.4%
12.7%
8.5%
6.8%
CY25E
CY26E
Dec-24
Jun-25
Sep-25
Source: Bloomberg Finance L.P., Scotia Wealth Management
Secular themes should provide a powerful tailwind for U.S. equities,
creating long term opportunities. The AI revolution, for example,
may broaden beyond a handful of AI infrastructure providers
as companies across a wide range of industries integrate AI to
boost productivity, create new revenue streams, and optimize
costs. Organizations have been assessing how AI may be used to
transform their businesses, and we expect the implementation
and availability of AI tools, co-pilots and agents to materially
accelerate through 2026 and beyond. The number of generative,
agentic, and physical AI use-cases is seemingly endless, with
transformative applications that are meaningfully enhancing
economic productivity.
Technological advancements and AI are also impacting healthcare,
enhancing capabilities in drug discovery, chronic disease
management, preventive medicine, and personalized healthcare.
In addition, consumers are prioritizing healthier lifestyles and
choices in their daily lives, translating into higher spending on
related products and services outside of traditional healthcare.
This “wellness economy” includes industries that provide products
and services targeted at improving consumers’ physical, mental,
54 of 62
