IG's 2026 outlook reveals why the cycle has room to run despite investor scepticism
IG Wealth Management's Investment Strategy Team calls this rally “the most hated bull market in history” because it left sceptics with little opportunity to buy back in.
However, IG's 2026 Market Outlook shows that investors who remained disciplined during 2025's turbulence have fundamentals on their side as they head into 2026.
The argument hinges on four concrete pillars, not speculation.
Monetary policy shifts decisively toward easing. Fiscal stimulus aligns across North America. Artificial intelligence investment accelerates at unprecedented scale. And household wealth continues to drive consumption.
As per the outlook, this combination creates conditions that extend the economic cycle rather than end it.
Rate Cuts Remove Years of Structural Headwind
The Bank of Canada will cut rates at least once in 2026, likely in March.
The US Federal Reserve is expected to deliver four additional cuts through September.
More significantly, the Fed announced its balance sheet runoff ends in December 2025—the conclusion of quantitative tightening that has drained liquidity for over two years.
For portfolio managers, this shift matters beyond the rate cuts themselves.
When quantitative tightening ends, reserves stop shrinking and liquidity moves from negative to neutral to positive. This transition typically benefits the most rate-sensitive areas of markets, including long-duration equities and credit.
According to the outlook, rate cuts compress discount rates used in equity valuations and support profit margins, with the effect most pronounced in technology stocks.
AI Capex Becomes the Economy's Growth Engine
Hyperscalers have committed to capital spending that IG reports equals approximately 1.5 percent of US gross domestic product.
The critical distinction: these firms finance the buildout through operating cash flows and balance sheets, not borrowing.
Mark Zuckerberg captured the strategic logic when he noted that underinvestment poses greater competitive risk than overinvestment.
Semiconductor sales have begun re-accelerating, signalling investment moves from boardroom talk to real spending.
According to IG's research, semiconductor sales growth has historically led MSCI World earnings growth by about six months—a pattern confirmed repeatedly in 2009, 2013, 2017 and 2020.
That same pattern appears now.
IG estimates AI infrastructure already accounts for roughly one-third of recent US gross domestic product gains.
Fiscal and Monetary Policy Work in Concert
In the United States, lower corporate tax rates and accelerated depreciation unlock capital spending flexibility just as AI infrastructure investment accelerates.
In Canada, Ottawa leans into expansionary stimulus on housing, productivity, and infrastructure.
As per the outlook, policy in both countries remains additive to growth rather than contractionary—a rare alignment that supports continued expansion rather than fighting the cycle.
Recession Risk Stays Low
IG's proprietary recession indicators show the US economy improving, not weakening.
The yield curve steepens. Financial conditions remain accommodative. Manufacturing output and housing starts show improvement.
Global trade volumes regain momentum following early 2025 disruptions.
In IG's assessment, these are not late-cycle signals—they signal re-acceleration.
Investor sentiment may remain deeply divided, but the foundation supports those with conviction.
The opportunity, according to the outlook, lies not in timing the market but in understanding it.
