AlphaRank Top Stocks – Market Musings: Looking Ahead to 2026

In other words, while mental models are useful for investors, humility in forecasts is essential. As investors progress on their capital markets journey, it is always helpful to have a map, even if it is clouded by uncertainty and populated with rough approximations.

Despite the perceived futility of making investment forecasts, it is a valuable exercise to review the investment landscape and highlight specific themes as we approach 2026.

Heading into the new year, there are several opportunities and risks that investors should have on their radar:

1. Precious metals – The “asset class of the year” award goes to precious metals, which broke out in 2025 with exceptional investment returns. While gold has surged 70.6% year-to-date, its little brother silver has skyrocketed 145.8%. Moreover, gold’s rally this year has continued a multi-year bull market for the yellow metal, compounding at 14.7% annualized over the past decade for a nearly 300% cumulative return. Despite its unproductive nature, lack of cash flows, and being branded a “barbarous relic” by British economist John Maynard Keynes, gold has greatly benefited the portfolios of diversified investors over the long term. While gold has outperformed the S&P 500 over the past 25 years and global real estate over the past 35 years, the primary reason to include the asset in a diversified portfolio is its diversification benefit, given its long-term correlation with US equities of -0.025. Nevertheless, with continued weakness in the U.S dollar, endless government budget deficits, and relentless central bank buying, the outlook for precious metals remains bright.

 

2. Canadian vs U.S. equities – The Canadian stock market has put up its second best performance on record this year, rising by more than 30% and outperforming U.S. stocks by a double-digit percentage. Before 2020, the Canadian and American stock markets traded at roughly equivalent valuations. However, over the past five years, U.S. equities have traded at a significant valuation premium over their northern brethren. As is often the case, it is not what you own that determines one’s success in investing, but how much you pay. Since current valuation is a primary driver of future investment returns, cheap stocks tend to outperform expensive ones on average. While mean reversion has powered significant outperformance of Canadian equities (orange line below) compared to U.S. equities (yellow line below) this year, with a current 5.5x earnings multiple gap, we believe this trend will continue in 2026.

Source: Bloomberg

3. Benchmark interest rates – Major central banks globally delivered the most interest rate cuts since 2008 this year, with nine central banks of the top-10 most traded currencies reducing their benchmark rate in 2025. These top central banks delivered 32 rate reductions this year. That said, several G10 central banks have now paused or reversed course, with both Canada and Australia looking to keep rates on hold, while Japan has already commenced a rate-hiking cycle with two rate increases this year. As for the world’s most influential central bank, the Federal Reserve, it spent seemingly every meeting in 2025 deliberating whether to cut or stay put, and rate hikes were not in the discussion. With the Fed approaching the end of its rate-cutting cycle likely in the back half of 2026, economists will begin considering a two-sided risk to Fed policy decisions, including potential rate hikes. While the market currently has priced in two remaining interest rate cuts from the Fed in 2026, easing momentum has clearly slowed amid persistent above-target inflation and strong economic growth. By the end of 2026, investors should have a potential rate-hiking cycle on their radar.

Source: CME Group

4. Long term interest rates – There are a couple of rules of thumb that investors can utilize in forecasting the 10-year bond yield: nominal GDP growth rate and the term risk premium. Given that bond yields naturally track economic expansion and inflation, the nominal GDP growth rate (real GDP + inflation) serves as a useful north star to map long-term bond yield expectations. With a nominal GDP growth rate of 5.7%, consisting of 2.7% inflation in December and a 3.0% real GDP growth rate estimate from the Atlanta Fed for the fourth quarter, the U.S. 10-year Treasury yield of 4.1% appears far too low (i.e. bond prices are too high). Alternatively, the term risk premium represents the additional yield that investors demand for the risk of holding longer-term bonds, such as the 10-year U.S. Treasury, over the average expected short-term risk-free rate over the same period. Historically, the 10-year term risk premium averaged between 1% and 2%. With the Fed likely to settle at a range of 300 to 325bps for the fed funds rate, unless something dramatic happens such as a recession that drags down inflation (which has been above the central bank’s target level for nearly five years), applying a term risk premium of 100 to 200bps gets us an expected 10-year bond yield of 4.0% to 5.2%. All signs point to bond yields rising modestly, presenting a headwind for fixed-income investors.

 

5. AI bubble – The million dollar question facing investors is whether AI is a bubble, and if it is, when it will pop. There are compelling arguments from both the bulls and the bears. Certainly, artificial intelligence is one of the most game-changing technologies in history and will have profound implications. With AI leaders, such as Nvidia and Alphabet, creating trillions of dollars of value for investors, it has paid off for the bulls thus far. However, broad use cases for the technology remain limited, and whether massive AI infrastructure investments will generate an adequate return on capital remains an unanswered question. While still early in its implementation, AI has yet to produce economy-boosting productivity gains. However, it has caused some economic consternation around job losses. That said, AI bulls such as Elon Musk are calling for double-digit economic growth in twelve to eighteen months and the potential for triple-digit (!) economic growth in five years with the broad adoption of applied intelligence. Conversely, the similarities between the tech boom and the internet boom are striking – so much so that some question how we could be making the same mistake twice (including applying $10 billion+ valuations to seed-stage AI startups that lack not only revenue but also a product idea). In addition, there are practical risks that AI investors face in the near-term. Questions linger regarding the depreciation of GPU chips, along with the overall economics of AI data centers and so-called neoclouds. If popular AI use cases (such as user-generated “AI slop” videos) do not justify the costly energy required to power them, if data centers end up unprofitable due to rosy GPU depreciation assumptions, and if frontier large language models end up commoditized and lacking pricing power (see recent Chinese open source LLMs), the AI boom could turn to bust. As the capital expenditure amounts continue to grow into the hundreds of billions of dollars annually, with much of it now driven by debt financing, the risks continue to grow. Meanwhile, investor concerns regarding an AI bubble continue to grow louder.

6. M&A – While precious metals won the “asset class of the year” award hands down, the “capital markets phrase of the year” easily goes to Make M&A Great Again. Although mergers and acquisitions, along with capital market activity in general, got off to a rocky start in 2025 with the emergence of a trade war, volatility soon cooled and corporate confidence to execute on M&A surged. As a result, the aggregate value of global mergers and acquisitions this year is nearing $5 trillion, its second highest tally on record. Although a rising stock market and a relatively stable bond market have provided a solid foundation for near-record deal flow, a friendlier regulatory environment has further boosted merger activity. If the equity and credit markets remain supportive, look for 2026 to perhaps set a new high water mark for deal volume.

7. Private credit – Few asset classes suffered the negative sentiment that private credit did this year. Surprisingly, well-publicized bankruptcies outside the private credit industry (such as First Brands and Tricolor) led to significant negative investor sentiment and selling pressure within the asset class, despite credit conditions in direct lending remaining relatively stable. Meanwhile, declining interest rates provided another reason for investors to exit the floating-rate asset class en masse. While the underlying direct loan portfolios provided a modest single-digit return this year, secondary price performance of private credit funds (listed BDCs) was ugly, leading to negative performance for the asset class as most other segments of the credit market performed well. The average listed BDC began the year trading in line with NAV (underlying loan values), but after this year’s sell-off, private credit funds are now offered at a -14% average NAV discount. With private credit now in its fifth bear market over the past twenty years, it is worthwhile for investors to consider that the asset class has recovered nicely after previous corrections, trading back up to the underlying net asset value over time. Nevertheless, with the average private credit fund trading at 86 cents on the dollar and yielding 13.9%, all investors may need is for sentiment to stop getting worse to do well and capitalize on the market recovery.

Source: Cliffwater, Accelerate

8. Global equities – After the equity bear market in 2022, stock markets around the world have been fruitful for allocators, providing three years of solid returns without too much drama (outside of this year’s brief trade war tantrum). However, given that some of the bull market was driven by multiple expansion, most stock markets around the world remain stretched from a valuation perspective. In terms of relative value opportunities, the equity markets of the U.S. and India appear the most overextended, while Japan, China, and select European markets offer more reasonable valuations. Nevertheless, at a time when global equity valuations are at the high end of their historical range, with some markets at or near record earnings multiples, it may be prudent for allocators to diversify beyond stocks into asset classes that may help protect portfolios as equity multiples compress.

While many risks and uncertainties loom as we enter the new year, opportunities abound. As a result, investors may benefit from taking a hedged approach in their equity allocation in order to enhance downside protection. To help facilitate idea generation, we highlight one top-decile stock that is forecasted to outperform and one bottom-decile stock that is predicted to underperform in this month’s AlphaRank Top Stocks.

 

OUTPERFORM: Ulta Beauty Inc (NASDAQ: ULTA) is a leading specialty beauty retailer in the United States, selling cosmetics, fragrance, skincare, haircare, and related products through its ~1,500+ stores and e-commerce platforms. Recent quarterly results showed 12.9% revenue growth and wider margins, with comparable store sales rising in the mid-single digits, outperforming quarterly expectations. Operating momentum has been positive, with management raising annual guidance. Historically, Ulta has generated strong free cash flow (3.7% FCF yield) and high returns on capital (51.4%), allowing reinvestment and capital returns through share repurchases. Finally, ULTA’s below market valuation (12.6x EBITDA) provides shareholders with an attractive entry point. With positive stock price momentum, along with an AlphaRank score of 99.9/100, we expect ULTA shares to continue to outperform. Disclosure: Long ULTA shares in the Accelerate Absolute Return Fund (TSX: HDGE).

UNDERPERFORM: Mattr Corp (TSX: MATR, formerly Shawcor Ltd.) is a materials technology and manufacturing company serving critical infrastructure markets, including transportation, communication, water management, energy and electrification, with engineered products like composite pipes, industrial cables, tanks and related materials. Even though recent quarterly results showed revenue growth, Mattr’s management issued cautious forward guidance for upcoming quarters, noting anticipated slower demand and seasonal headwinds that spooked investors. This management guide-down contributed to significant negative share price momentum and lost confidence of investors. In addition to the recent slowdown in operating momentum, MATR’s low return on capital (7.8%) highlights challenging profitability, which has contributed to negative free cash flow. With an AlphaRank score of 6.1/100, we expect MATR shares to continue to underperform. Disclosure: Short MATR shares in the Accelerate Canadian Long Short Equity Fund (TSX: ATSX).

The AlphaRank Top and Bottom stock portfolios exhibited positive relative performance last month: