New year, new records: Equities rise as growth outlook improves

Key takeaways

• Global stocks hit all-time highs
• U.S. labor market still looks resilient
• ECB likely to remain on hold 

It’s only been a few days since the start of 2026, but global equity markets are already reaching new all-time highs. Major benchmarks—including the Dow Jones Industrial Average in the U.S., Canada’s S&P/TSX Composite Index, and Japan’s TOPIX—posted strong gains this week, underscoring the continued momentum in risk assets.

One of the key drivers behind this strength is optimism around corporate fundamentals. Consensus expectations point to double-digit earnings growth in 2026, not only for U.S. companies but also for firms outside the United States. In our view, these expectations are not unreasonable given the broader macro backdrop.

We believe the global economy is transitioning away from a period of mere resilience toward a potential reacceleration. In 2025, growth was weighed down by uncertainty around U.S. tariff policy and changes in immigration policy. As we move further into 2026, we believe many of these headwinds are likely to fade. At the same time, structural tailwinds—such as the increasing adoption of artificial intelligence and looser financial conditions—are becoming more pronounced and should support both U.S. and global growth.

While economic performance is still likely to vary by region, we expect the U.S. economy to remain in solid shape this year, with somewhat more vulnerability outside the United States. Overall, we believe 2026 has the potential to be a stronger year for global growth than 2025.

Importantly, despite equity markets perched near record highs, we haven’t seen any clear signs of market euphoria. From our perspective, the absence of excessive exuberance suggests there may still be room for markets to grind higher. This reinforces our view that investors may be better served by staying close to their strategic asset allocation rather than tactically underweighting equities simply because valuations have risen. 

Recent labor market indicators continue to suggest that conditions in the U.S. are holding up well. Measures such as private-sector job creation from ADP and Revelio Labs, along with weekly initial jobless claims, point to a labor market that still looks healthy.

Although job growth has slowed compared with the pace seen in 2024, this moderation should be viewed in context. Population growth—and therefore labor force growth—has also decelerated, meaning fewer new jobs are required each month to keep the unemployment rate stable. As a result, we expect the U.S. labor market to remain broadly balanced and supportive of economic growth in 2026. 

This week’s inflation data from outside the U.S. provided further insight into the global policy backdrop. In Europe, inflation remains close to the European Central Bank’s (ECB) 2% target. We expect the ECB to keep its policy rate on hold around 2%, which we view as close to the neutral rate of interest.

In Australia, both headline and core inflation edged lower. While inflation is still above the Reserve Bank of Australia’s (RBA) target, we believe it’s too early to be considering rate hikes. Markets, however, are pricing in some tightening. Against this backdrop, we see potential value emerging in Australian government bonds.