Investors enter 2026 with low recession risk as central banks ease, AI capex climbs and equity gains fuel a wealth effect: IG Wealth Management’s 2026 Market Outlook.
Volatility hammered markets in early 2025 – and, according to IG Wealth Management's 2026 Market Outlook, the investors who did nothing may be in the strongest position heading into 2026.
According to the Outlook, recession risk remains low into 2026, with a steepening yield curve, improving manufacturing output and housing starts, stabilizing inflation and accommodative financial conditions pointing to an improving US backdrop rather than a weakening one.
Philip Petursson, Chief Investment Strategist at IG Wealth Management, said “recession risk remains low into 2026, while our macro indicators related to financial conditions support a constructive outlook for the year ahead.”
He added that markets have largely stabilized after the early‑2025 tariff shock and that investors who stayed the course can be confident in the durability of the current cycle.
Policy is a key part of that story.
As per the Outlook, central banks have shifted from restrictive settings to easing, with further rate cuts expected from both the Bank of Canada and the US Federal Reserve.
This supports corporate investment, housing and consumer spending, and relieves some valuation pressure on long‑duration sectors such as technology.
On the fiscal side, IG says Canada is leaning into spending on housing, productivity and infrastructure, while the US is preserving lower personal and corporate tax rates and accelerated depreciation, leaving policy on both sides of the border broadly aligned with the current “constructive” economic cycle rather than fighting it.
The Outlook also argues that artificial intelligence is now a genuine macro driver, not just a market narrative.
According to IG, AI‑related capital spending by major technology “hyperscalers” has surged, funded largely by operating cash flows and balance sheet strength, and now represents a meaningful share of recent US GDP gains.
IG points to re‑accelerating semiconductor sales and notes that, historically, semi sales growth has led global earnings growth by about six months, suggesting the AI build‑out is beginning to feed through to broader corporate profitability.
On the demand side, the “wealth effect” is another pillar.
As per the Outlook, equity gains over the past three years – especially in 2025 – combined with relatively stable fixed income have boosted household wealth, particularly among higher‑income investors who own most of the equity market and drive a large share of discretionary spending.
IG cites research showing that each extra dollar of wealth can translate into meaningful incremental spending. It notes that recent data show both discretionary and non‑discretionary outlays still growing, with higher‑spend cohorts leading.
Consumer discretionary stocks also continue to outperform staples in equal‑weight terms – a classic risk‑on signal that points to resilience rather than late‑cycle defensiveness.
"Investors can expect the global economy to continue on a positive trajectory in 2026 as we move past the rolling recessionary environment of 2023 and tariff uncertainty over the last year," said Petursson.
He added that “if 2025 was a year of uncertainty, 2026 will bring clarity—not through the absence of noise, but through the strength of fundamentals.”
He argued that monetary easing, fiscal expansion, AI‑driven investment and increased household wealth give investors reason to stay constructive, provided they focus on understanding the cycle instead of trying to time it.
