Episode 114: Fearless forecasts—does improbable mean impossible?

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Macan

Welcome to the first episode of 2026 of Investments Unplugged. I'm your host, Macan Nia, co chief investment strategist at Manulife Investments. And as always, I'm joined here with my partner in crime, co-chief investment strategist Kevin Headland.

 

Kev

Good. How are you? Did you have a good break?

 

Macan

Yeah. Not too bad. Short as usual. And as we're in the midst of January, it's, It seems very long ago now, but I wanted to, Yeah. Seems like. It seems like ages ago. But anyways, for this episode of Investments Unplugged, we thought we would do, wayback playback. And what I mean by that is, years ago, we would record a podcast and it was called Fearless Forecasts.

 

Macan

And the idea was to give predictions that were maybe against the consensus, but not by a little bit. Like these are forecasts that when heard you, it kind of makes your eyes pop out or, you know, steam coming out of your ears because they are so absurd. But the idea is that, yes, they may seem, you know, unlikely to happen, but they could also happen.

 

Macan

So an example from the sports world of last year was many thought that the Jays could win the Al East and make a good run. Seemed improbable at the beginning of spring training ended up happening. So that's the idea here is saying very bombastic claims with the notion that they may happen. But to give supporting documentation or statistics of why we think that it is likely to happen.

 

Macan

So let's get started. Kev, you want to start us off in terms of the first beer list forecast of 2026, and I think it's very important to highlight that we're not going to hold either ourselves accountable to these because they're going to be so crazy. But you know what? What I'm going to do I'm going to make us pick one of ours that we think is the most likely to happen.

 

Kev

Yes.

 

Kev

Okay. You really didn't. Okay. So that's great. Wild upswing. Kev. What does that mean?

 

Kev

You got to give us a number here.

 

Kev

So you're saying it's. So you're saying that 35% increase in 2026.

 

Kev

Yeah okay. So that will be on the back. So that's going to be on the back of 65% last year. And roughly 27% in 2024.

 

Kev

And why that is fearless is you have never or I shouldn't say never. But in the last couple of decades have seen gold at the top of the asset class return charts for subsequent years. Yellow on three years in a row. Which would be your fearless forecast?

 

Kev

Okay, so we did not. We actually made a point. Prior to recording this, we were talking about the podcast. We do not know each other's three questions and we do not know each other's forecasts. Now, interesting enough, I have mine. I also had a gold I outlook and I'm with you, but I'm actually going to go higher.

 

Kev

I'm going to say gold is up 40% to 50% this year. And the odds of that happening again, I think they're actually not that low either. I'm going to say 30 to 40% chance of that hitting two year point Kev. Reasons why. Let's think of why gold has rallied close to 100% over the last couple of years. Policy uncertainty likely to continue moving forward.

 

Kev

We have a fed chairman position available to May could create even more uncertainty. Central banks cutting rates right. Devaluing of currencies. I know most central banks are probably majority dunder central bank cuts program lower rates. Right. We're not going to be seeing rates increasing. Also central banks will continue to diversify their, you know, reserve holdings from treasuries maybe a bit more to other currencies.

 

Kev

But also gold being another aspect. And one thing I keep hearing from the bears is, you know, at some point the marginal cost of production is so much lower than what the gold price is. Gold producers are going to be required to just free production because it's worth while. The magic number is 2250. So we are well above that.

 

Kev

That's the one bear case. But these gold projects, or any commodity project in general, takes years and years and years to materialize. So I don't think that's going to be an impact for this year. And, you know, a big one. And I think maybe some of our questions are going to have to do with momentum and the ability of momentum to drive certain asset classes to the upside in 2026.

 

Kev

You look at gold held by, ETFs. It rose 160% CAD from Q2 to Q3 of last year. Costco now sells gold coins and silver coins and bars, so there is a lot of momentum in the retail. Not, I guess, not in Canada. In the retail environment. And that's likely going to continue. I think what regardless of, you know, inflation being below 3%, I think a lot of, consumers are feeling the impacts of inflation, right?

 

Kev

Whether it's food, whether it's other aspects and that that desire for gold is likely to keep. So you're saying 30. I'm saying 40. Both very outlandish given the run in the underlying, base metal. I guess it's the precious metal. Precious metal over the last couple of years. So that's for fear. This forecast, number one is gold is up anywhere between 30 and 50% this year, which will be a helpful driver of the TSX.

 

Macan

Again, in 2026. So should I, should I do the next one? Okay. I'm going to say that the S&P 500 is up 20% in 2026. Outlet.

 

Macan

Carves that is reaching on the limb because ultimately you don't think it is.

 

Macan

Okay let me rephrase that. Let's go against consensus because I still think 20 plus percent this year is an outlandish statement given valuations given where we've come from. Let me say this because consensus is is it seems that valuations will contract this year for consensus. And I will take the flip side of that and fear this forecast to your point and say, actually, I think multiples can expand further from this point.

 

Macan

We have heard at nauseum the arguments, against market returns because of valuations being at elevated levels. But I will say in 2026 they will go higher. The march will be higher, it will not be lower. And it'll be driven by a couple key themes. Number one, liquidity, Fed's cutting rates. We have loose financial conditions in the US.

 

Macan

And you know generally global money supply continues to expand. Speaking of central banks. So let's just say we did weighted average of cuts last year. The average central bank rate last year was four and a half. They cut it to three and a quarter going into this year. So that's very positive from liquidity. So that's number one.

 

Macan

Number two is slows. So the weighted average basically when you take major central banks across the world look at what their policy rate was at the beginning of the year, roughly four and a half. And what it was by the end of the year was roughly three and a quarter. So you're looking at Canada, US, the US very Europe.

 

Macan

So just generally looser monetary conditions.

 

Macan

Yeah. So you get down there, so maybe you should read a little bit more. But anyways, let's go to the next.

 

Macan

So you would look at GDP as a percentage of the total. Do look at it from a developed market perspective. And then whatever the policy rate is times the percentage of the total. Then you get the weighted average.

 

Macan

Part it is it. No it's an index. It's a Bloomberg index okay. So number two will be flows. So 60% of the. So this is we've heard all the stats of 40% of the S&P is the top ten names. We've heard that at nauseum all of last year. What I find interesting going into this year is 60% of the S&P 500 is passive investing, which is or in a passive vehicle.

 

Macan

So assuming those flows continue, they'll flow into those tech names. You know, from a market cap perspective you have that driver. Third. And this I should have placed at number one is fundamentals and earnings. So those very key factors that saw we saw in place drive the S&P up 1,617% last year. Productivity lower borrowing rates deregulation. They are still in place.

 

Macan

Add on top of that the big beautiful bill right where we should start seeing the economic impacts of the big beautiful policies in 2026. And you like you said GAAP earnings growth for the S&P. So for the big seven right now it's 23% for the rest of the market it's 11%. So again when you look at 11% earnings growth rest of the market, let's even take out the big tech couple multiple point expansions.

 

Macan

You're up 20%. And maybe I'll add this one. We will end 2026 at an all time high.

 

Macan

So my fearless forecast for 2026 we get multiple expansion in the US despite historically high levels of valuations. And we will end the year at all time highs for the S&P 500.

 

Macan

Actually in cash. Sorry. The one thing I want to say too is you've never really seen going back. I was looking at it the last 3030 years. You've never really seen multiple contraction. You've seen multiple contraction in in environments where the Fed's raising rates, where you see recessions, you've never seen multiples contract in an environment where the fed is cutting, there's no recessions and margins are expanding.

 

Macan

So when I look at it it's like, okay for you to for one to think that you're going to get contraction multiples. You got to believe we're getting a recession in the US, which we don't see. And you got to see an environment where the fed starts raising rates, which we don't see either. So because of those reasons, expansions, as we go into next year.

 

Kev

Or.

 

Macan

Okay, I don't think that's like we have seen interest rate expectations since Covid. And they have widely changed. So from 2 to 4 is not serious for me. Kev, let me ask you this.

 

Macan

Let's say this more likely that we get no cuts this year or six cuts.

 

Macan

Oh, I would go six cuts.

 

Macan

No no no no no no no cuts. Not rate not level.

 

Macan

So you're like we don't get any cuts in an environment with this economic like with this with a new fed chairman.

 

Macan

Is that the would that surprise you in a midterm election year with this administration?

 

Macan

No no no I'm saying you get upset, chairman. And that is aligned with the current administration. And despite decent fundamentals, they are they cut six times this year to to take a U.S. economy that going into this year from a GDP perspective, which was doing very well just to supercharge it.

 

Macan

Now I'm not disputing that, but I'm saying for me, I for me, I could see them cutting six times. I'm not doing anything at all. Hopefully it's we're both wrong or hopefully it's somewhere you with market expects because I think 2 or 2 times, 2 to 3 times, or even your scenario of four times in this backdrop, with inflation, you know, that's somewhat contained.

 

Macan

And look at the factors for inflation, two caps. So you have oil prices that are like that are lower. You have basically rent coming down. Gasoline prices as we mentioned. So you know, all those aspects of homeownership, which is a big component of inflation. The forward indicators of those illustrate that they're going to trend lower. So.

 

Macan

Okay. Mine next one.

 

Macan

This one I was going to a correction. Do I see a bear market at some point in 2026.

 

Macan

And I'm going to say yes. S&P 500.

 

Macan

Yeah it's going to be a whipsaw that be very similar to last year. And the reason I'm saying that is we have a couple big things coming up. So the Supreme Court ruling in terms of the legality of the Trump tariffs, what happens if they come out and say these things weren't legal? The US is now forced to pay back all those tariff revenues that they have.

 

Macan

You know, gathered, taken, ripped out in terms of whatever it is, in terms of the big beautiful bill, could that create uncertainty? Maybe we have a new fed chairman in May. Who is that going to be? I don't know, we have a midterm election. And historically and you know how much I hate the data in terms of you know, in a midterm election year or if it's the US election, but midterm election years are generally the weakest within the presidential cycle.

 

Macan

We have valuations. Again, I think valuations are going to go higher, but the less could be to the downside in terms of whatever, you know, comes from the back page of the Financial Times to the front page. We have geopolitical uncertainty. And I think the events that unfolded over the holidays, I think surprised me. I don't know if it surprise other individuals, but investors, but, you know, waking up, seeing basically Jason Bourne type of extraction of a head of state, that's very surprising.

 

Macan

So maybe that continues in 2026. So we will see when it happens in my eye. So I'm going to say bear market. And I'm also because it is fearless forecast. I'm going to give the audience a little bit more detail. Do I think this bear market will happen in June and July of this year? So not only am I calling for a bear market, but we end the year up 20%.

 

Macan

That's a 40% intra year, change. But I think the sell off will happen in June July. And the only reason I think that is I'm going away for two weeks on vacation. And his thought historically, my vacation is strongly correlated with steep market declines. So that's my fearless forecast. We get a bear market in the S&P. Other global markets will follow as well, and it will happen in the summer.

 

Macan

But most markets and major markets would have rallied significantly from that point. By the end of the year.

 

Macan

We kind of saw that this last year get 2025 right. March and. Three months. Sure.

 

Kev

Oh.

 

Macan

No, man. Go big.

 

Macan

It had to be interest in the differentials to know.

 

Macan

So you're four times.

 

Macan

What do you think the Bank of Canada does in that backdrop? Right. If you're at $0.80, are they uncomfortable with a stronger especially if they want to export, you know, replace some of the trade that we have with the US with part of the world is a Bank of Canada forced to cut and at some point.

 

Kev

Sure. Okay.

 

Kev

Okay. My next one is I think you covered one of mine though. So us I'm saying. Multiple expansion, up 20%. I'm also saying a bear market. And I and I had my gold forecast. Yeah. You know, it's.

 

Kev

Did we say we're going to do it sports related or. But what's yours. Yeah. Go ahead.

 

Kev

And this is based on injuries or is this based just on performance?

 

Kev

I think you may be right. I think you're going to be wrong, but.

 

Kev

I'm going to say this one. And this is political, I think Canada, the US become friends again in 2026. I think Prime Minister Carney and President Trump will at some point sit down. They will hash through all the challenges or, you know, whatever it is between tariffs, between these two countries. And I think we will go into 2027 in a much more not to say we're going to go back to the dynamic between Canada and the US, but I do think that we will be in a much more you know, friendlier relationship with the with our American friends in 2026 or throughout 2026 than we did in 2025.

 

Kev

Because right now it is backs against the wall in a way. Right? You do you I do mean and.

 

Macan

Yeah.

 

Macan

I hope so I hope I hope so I first I was yes I like this you know go Canada and I'm like I just want a bourbon. But you see you see the impacts there right. Like you're seeing in Kentucky Jim Beam reducing their 2026 production. And a lot of these smaller distilleries you're seeing them that don't have the scale of, you know, Jim being a Woodford Reserve there going on there.

 

Macan

So, you know, I think there's going to be a little bit more pressure even from farmers on both sides. That's why it's not just on one side, it's both sides feeling the heat. So I think as a result we'll have conciliatory, more conciliatory tone between these two nations. And I'm going to go against you, Kevin. I'm going to say the Jays are going back to the World Series.

 

Macan

Kev. I think the team is and I'm just saying they go to the World Series. But a team, the formula can be repeated and the formula is contact. The formula is good defense. With their signings, they've only improved on that. The bullpen is a question as it will be always. But I like the signings. And you know I'm going to say we're running a back to back.

 

Macan

This is a early 90s. As a Jason, I'm fortunate we won in the early 90s. First time I like that up right. I'd like this time, but I think they're going back to the World Series. Have you gone over that loss yet, Kev, or are you still.

 

Macan

Yeah, same with the Astros. Yeah, I think so. Did that too, back in the day. But, so we will see. We should we will revisit these at the end the December podcast recording. But just to highlight Dom is again S&P 500 where consensus is that multiples are likely to contract. We're saying they expand S&P up 20%. We're saying you're saying Kev that the fed is much more likely to cut four times this.

 

Macan

Not much more likely is going to cut four times this year versus consensus of two. You have a CAD USD at $0.80. At some point this year, I hat and we both talk about gold. We're saying up 30 to 40%. And with me I say a bear market at some point this year, but we still managed to hit, bull like recoup those losses and still be up 20% by the end of the year.

 

Macan

And I think all of these we've we've done them over the years, the ones I have, the one thing I take back from an investor perspective is the importance of diversification, because some of these will come into fruition, some of these will not. And if you're not diversified, then your portfolio is exposed. Look at gold as an example.

 

Macan

You could have been a gold hater over the last couple of years. And how zero gold. Why you seen what gold has done. And you look at Canada versus us last year, international Em specifically versus the US. So the importance of diversification you saw on the equity side last year, you saw it on the bond side Kev 8% for global bonds, 2% for Canadian aggregate bonds.

 

Macan

So the importance of diversification is not just, specific to equities. It's also in fixed income.

 

Kev

Yeah.

 

Macan

I think that's a good place to pause this one, Kev, for January. Thank you, everyone for listening. If you do like the podcast, please, rate us, rate us highly. It helps us, in terms of our rankings, it helps us to be exposed to other like minded investors, like everyone listening. And if you have friends or colleagues that listen to financial podcast, please recommend us.

 

Macan

Again, it helps us in terms of our numbers. If you're going to do we have the Antarctica one yet or no.

 

Macan

So if we have not been that long in Antarctica, and if anyone is going, Kevin has promised that he will pay your internet bill for the cruise. Yes. They get just to get that one download from Antarctica. But all joking aside, we want to thank everyone for listening in. We recognize there are thousands of podcasts out there, like thousands of ETFs out there.

 

Macan

So you taking the time to listen to us for half an hour every month means it means the world to us. And we want to thank you. So with that, farewell. Until next month, I'm Mark Hania.

 

Kev

Have a good one. Cheers. Bye.