Steve Locke explains why equities should, broadly, do well this year
The equity bull market that began in the US in October of 2022 and spread into global markets in 2025 looks set to continue into 2026, at least according to the latest outlook from Mackenzie Investments. For all this bull market’s remarkable returns, it’s been characterized as ‘unloved’ due to a high degree of returns concentration in expensive mega-cap US tech stocks and the broader economic issues of higher inflation, tariffs, and geopolitical uncertainty that have taken hold over the same time.
Despite the issues of valuation, geopolitics, and news sentiment that may plague the casual observer Steve Locke, Mackenzie Investments CIO for fixed income and multi-asset strategies, believes that equities should continue to deliver in 2026, but with greater breadth across sector, style, and geography than we have seen in this bull market. While an argument for widening breadth of participation has been made at the start of 2024 and 2025 as well, Locke believes that the way last year ended shows the likelihood that equity markets actually broaden in 2026.
“There has been an inflection in 2025 that we would say lends support to the broadening of exposures in a portfolio,” Locke says. “We are not saying that the Magnificent Seven companies are going to become unprofitable or that their fundamentals will really lag, but what we’re thinking about are the forward earnings for these companies and how much they’ve been discounted relative to some of the other businesses that are going to use some of this innovation to propel their own profitability in 2026 and beyond.”
In addition to the broader realization of efficiencies and productivity from private sector AI adoption, Locke notes that some of the geopolitical forces unleashed in 2025 will result in stronger equity market performance around the globe. The imposition of tariffs by the United States has prompted a number of economies to diversify trade partnerships and strengthen domestic output, in part through significant fiscal stimulus that should continue to buoy markets in economies like Canada, Germany, and Japan. That global diversification, Locke notes, should unveil some differential growth stories for companies in different markets that investors can take advantage of with a more diversified outlook.
While certain developed economies, notably the United States, Italy, France, and Japan, have seen debt to GDP ratios rise well in excess of 100 per cent other economies have fiscal room to run. Germany, is likely the most notable example with a debt to GDP ratio of around 64 per cent in 2024 according to the IMF. Moreover, Locke notes that some of that debt spending can still be highly stimulative to both the domestic economy and equity markets. High debt levels can cause long-term issues for fixed income markets, but Locke doesn’t see most of the developed world hitting that inflection point just yet.
The shifting geopolitical landscape that prompted this renewed fiscal spending introduces its own elements of risk for equity markets. One need only look at the whipsaw experienced in mid-January when threats of a US invasion of Greenland spooked equity and fixed income markets. That risk, Locke says, is something investors should always acknowledge. It should also not feel unfamiliar at this point, given the experience following Trump’s ‘liberation day’ tariffs. There has been a “thickening” of tail risks to both the positive and the negative, Locke explains, and the only answer to that environment is diversification.
Mackenzie, therefore, is recommending a more neutral and broad exposure to equities, along with most other asset classes. That may fly in the face of a bull market that has largely rewarded concentration, but Locke sees enough change in investor appetite to confidently promote a more diversified allocation.
In assessing and reassessing his outlook Locke says he will be closely watching political developments, be they the US midterm elections in November or the ongoing geopolitical reset. The United States’ pursuit of commodities and security in the western hemisphere may continue to play out over the course of the year, presenting tail risks that Locke and his team will remain aware of. Those risks, he notes, should further drive home a renewed emphasis on diversification among advisors and their clients.
“As we look forward, we need to think about how we lock in some of those returns [from AI] but still stay exposed to that great growth story, and so that's where that diversifying takes us. It's a rebalancing of the risks,” Locke says. “2025 marked an inflection point in the way that geopolitical and trade balances were being reset across the developed world, in particular. That has led to policies being implemented in some areas, some countries, and some areas of the world, which are growth supportive for those countries. Those areas will propel some of the industry, the local industry and those markets. Those are investable opportunities and certainly create that sense of diversity and regional equity exposure that we think will benefit.”
