From stimulus to signals: Insights from Andrew Marchese - January 7, 2026

Stimulus reshapes market cycles

Andrew explains that large amounts of capital injected since the global financial crisis and COVID were never fully removed. As a result, economies now move in smaller oscillations rather than classic boom‑bust patterns. Purchasing managers’ metrics tend to hover around the 50 level globally and markets watch the rate of change more than the magnitude. He notes that Canada appears to have more of an affordability challenge than a pure inflation problem, which changes how higher rates are absorbed.

AI spending may mask weakness

Strong AI‑related capital spending may be influencing how the broader economy appears in the data. Some observers think this investment could be lifting certain indicators, while others believe the environment simply reflects a slow but stable backdrop. There is no firm agreement either way, which is why interpreting macro signals can be difficult. Stimulus dating back to late 2024, along with ongoing policy support, adds another layer of complexity when assessing where the cycle stands.

Valuations and earnings expectations

The valuation gap between U.S. stocks and the rest of the world has narrowed as earnings expectations have shifted. Consensus estimates point to roughly 13 percent profit growth for the S&P 500 over this year and next, compared with about 8 to 9 percent for EAFE markets. With valuations already higher than their long‑term averages, there is less room for further multiple expansion, which means future returns would likely depend more on actual earnings growth rather than rising valuation multiples. Last year did see multiples expand, but pushing valuations noticeably higher from here becomes more challenging given the current starting point.

Thematic winners and early‑cycle groups

Last year’s market was led by themes tied to AI, data centres, rising energy demand, nuclear, copper and defence spending. Mining stocks were strong and there was speculative strength in non‑profitable Russell 2000 names after liberation day. Early‑cycle groups like banks, housing, autos and transports typically benefit in rate‑cutting cycles, but Andrew points out lingering uncertainty. For example, railroads saw eight consecutive rounds of negative earnings revisions, and autos face tariff‑related challenges. He finds these industries interesting in a supportive fiscal and monetary backdrop, but he does not call them buys.

Canada’s hard assets and policy path

Canada’s advantage lies in the strategic minerals and energy resources needed to support AI infrastructure and broader industrial activity. Andrew describes this theme as a “page 16 story,” meaning it is still underappreciated compared to headline‑grabbing AI developments. As more countries move to secure access to key resources, this theme is slowly becoming more prominent. He also notes that Canada now has fewer publicly investable mining companies due to years of consolidation and that Canada’s long‑term competitiveness will depend on policy decisions and the trade alliances it forms as global trade relationships continue to shift.

Risks to monitor in 2026

Andrew views AI as a central market risk because the earnings of hyperscalers drive the entire CapEx cycle. If earnings weaken, spending could slow and confidence could fall, which would affect many companies tied to the build‑out. He notes that credit spreads are tight and inflation has improved, but ongoing liquidity expansion raises the risk of inflation returning later, similar to what happened in 2022. In the U.S., he expects a bias toward cutting rates if labour softens without signalling deeper weakness. He also highlights that housing has become a political focus and may require managing long‑term interest rates. To explain the risks of constant stimulus, he uses a pharmacy analogy: adding more liquidity to fix problems is like giving a patient new medications to treat the side effects of the first drug. Over time this approach can create even bigger complications, including renewed inflation.

Trade complexity and the role of price

Global trade negotiations and policy decisions, including the need to revisit regional trade agreements, are difficult to predict. Andrew suggests doing the work to understand risks and potential upside, then letting price be the guide for action. He notes that buying cyclicals often feels uncomfortable because it tends to happen when headlines look worst and cautions against buying when things sound too good to be true.

Conclusion: Key themes to watch