North American equity markets have provided investors with healthy gains over the past few years. But 2026 may prove to be a challenging year, if history repeats itself.
The second year of a U.S. presidential election cycle is often weak for equity markets. For instance, in 2022, the S&P 500 plunged 19 per cent. And during President Trump’s first term, the S&P 500 declined 6 per cent in 2018.
Yet Javed Mirza, managing director of quantitative/technical strategy at Raymond James, believes markets will rise to record highs.
He expects the S&P 500 may deliver a 16 per cent return in 2026, closing out the year at 7,940. Based on his analysis, the S&P/TSX Composite Index has its next technical target pegged at roughly 35,000, an increase of nearly 2,000 points.
On Jan. 14, I spoke with Mr. Mirza and discussed his bullish stock market predictions along with his stock ideas.
For 2026, 16 Canadian and U.S. stocks made his best ideas list. They are Aflac (AFL-N +0.22%increase), Avery Dennison (AVY-N -1.47%decrease), Canadian National Railway (CNR-T -0.49%decrease), Diamondback Energy (FANG-Q +0.28%increase), FedEx (FDX-N -0.32%decrease), First Citizens BancShares (FCNCA-Q -0.75%decrease), Global Life (GL-N +0.09%increase), Granite REIT (GRT-UN-T -0.32%decrease), Interfor (IFP-T -1.75%decrease), Ivanhoe Mines (IVN-T -0.68%decrease), Jack Henry & Associates (JKHY-Q -0.23%decrease), J.B. Hunt Transport Services (JBHT-Q -0.56%decrease), Packaging Corporation of America (PKG-N -1.88%decrease), Prologis (PLD-N -0.62%decrease), Stella-Jones (SJ-T -1.27%decrease) and Targa Resources (TRGP-N +0.37%increase).
Here are highlights from our conversation.
You expect the S&P 500 to deliver another year of double digit returns with your year-end target pegged at 7,940. However, you anticipate markets will see “choppy consolidation”, or sideways action, over the next 10 months with momentum accelerating in November and December.
So, this year is actually the worst year of the four-year presidential cycle. Normally, you see a return of 3 per cent. Markets are choppy until U.S. midterm elections are held in November.
But once all that uncertainty is gone, then the market accelerates.
More stories below advertisementwe’re telling clients is to use weakness throughout the course of this year to accumulate positions because that should set up another leg higher into 2027. We’re very constructive on equity markets into 2027.
Does the same narrative hold true for the TSX Composite Index?
The S&P 500 outperformed in the bull market from 1980 to 2000 and then most recently from 2010 to now – and that’s reflecting mega cap growth, the ‘Magnificent 7’.
But the TSX closed above a key moving average at the end of December, and that is telling us that potentially we’re seeing a secular or long-term shift underway.
The key takeaway is that there’s a potential longer-term secular trend change underway that favours the TSX over the S&P 500. Ultimately, this is telling us that we’re seeing a potential shift to resources and away from paper assets.
You said the TSX broke above a very important moving average that signaled a potential shift. What was that important moving average?
It’s the four-year moving average, and it’s a great barometer or indicator of longer-term or secular trends.
When people think of technical analysis, they think of short term and day trading. But our work is the opposite. We have very long-term charts, very long-term views. Technicals are really good at highlighting longer-term inflection points.
Let’s talk about your best ideas for 2026. You have five Canadian stock picks and 10 U.S. stock ideas. Can we run through your Canadian ideas first so Ivanhoe Mines, CN Rail, Granite REIT, Stella-Jones and Interfor?
All the ideas that we’re highlighting are part of our bigger thesis that we’re going to see a broadening of the rally this year. And we’re going to see money flow into other areas of the market – it’s not just going to be the ‘Magnificent 7’ that are going to be leaders.
For Ivanhoe, we’re seeing technicals improve, price momentum is strengthening. We’re seeing institutional investors stepping in and adding exposure. The technical profile suggests that we are going to retest the highs that we saw in 2024, around $20, and then the next upside target is around $25.
CNR put in a floor near major support around $128. We’re seeing relative strength improve, price momentum turn-up, and we’re seeing institutions step in and start adding exposure.
Given where we are in terms of the economy and where we think we’re headed more importantly, this should be a tailwind for industrials, basic materials and information technology. CNR should benefit from a strengthening of the economy and a broadening of the rally.
The chart for Granite REIT looks quite constructive. It’s been in a three-year sideways consolidation. Price momentum, relative strength and volume are all telling us that institutions are buying this REIT. It looks like it wants to breakout above the highs around $90 and then the next upside target is near $95. It really fits in with our pro-economy strengthening theme.
Stella-Jones, which is more of an infrastructure play, is a long-term compounder with improving technicals.
A contrarian call is Interfor, which our fundamental analyst likes as well. If we’re correct that we’re shifting into phase two of the market cycle model that should be very positive for cyclical commodities such as copper and lumber. And what we’re seeing right now in futures is that commercial hedgers, also known as the ‘smart money’, are positioned long lumber. Sentiment is very bearish on lumber. We think the reward-risk ratio is quite compelling here. Interfor is showing early signs of turning around.
When you said that we’re shifting into phase two of the market cycle model, what do you mean by that?
So, that’s the market cycle model. Our long-term technical and cycle work suggests that markets move in phases as we progress through a four-year cycle. A four-year cycle is a three to five-year cyclical bull market. Phase one is typically when the market is bottoming and it’s starting to turn up in advance of a weak economy because the stock market always looks six to nine months ahead and it discounts what’s happening right now. So, phase one is when you see early signs of green shoots. Phase two is when the market has already put in a low and is accelerating, which is what we’re seeing right now. This is when the economy starts to show signs of strengthening. Phase three is typically the market peak, when the market is running on all cylinders, so there’s a lot of demand, and as a result, demand for energy goes up as goods need to be shipped around the country and as people travel. So in phase three, input costs are quite high and that’s when inflation starts to come into the system. That is when you start getting concerned about what we call a four-year cycle reset, that’s the contraction phase of the business cycle. Phases four and five, that’s when the market starts to roll over and come under pressure. In our view, the two most recent instances of these occurred from February to April of 2025 with the tariff tantrum, and the bigger correction occurred in January to October of 2022.
The stock market during a four-year cycle reset typically draws down 15 to 20 per cent in terms of magnitude and typically these corrective phases last around 34 weeks. I would note that the tariff tantrum was one of the shortest corrections we’ve ever seen. We did see damage of over 20 per cent, but we did not see the duration, which typically lasts around 34 weeks, and it was call it, eight to 10 weeks.
So, the stock market put in a low in April 2025, representing the four-year cycle reset?
That’s a great question because that’s the timing of when we think this new four-year cycle started and the stock market should have upside into the second half of 2027, first half of 2028.
Of the 10 U.S. stocks on your 2026 best ideas list, can you highlight three with the best technical charts or ones that look the most attractive to you?
FedEx.
And then First Citizens BancShares.
And then, if we’re correct on our broader call in terms of the shift into phase two of the market cycle model, which should be good for the broader economy, then Avery Dennison.
Can you give readers your analysis on the charts for these three stocks?
All three of these names are seeing price momentum improve. We’re seeing relative strength accelerate. We’re seeing institutional investors stepping in and buying, and all of these are trading above key technical levels at their 48 and 200-month moving averages and what that is telling us is that the long-term and secular trends are up. So, all of these have positive technical characteristics and a tailwind of where we are in the market cycle model should really benefit these names.
What are your technical targets for each of them?
For Avery, it’s $220. For First Citizens BancShares, it looks like it wants to test first resistance around $2,300. And then FedEx, the next upside technical target is around $350.
Do you favour any particular styles like growth versus value?
Given where we are in the market cycle model, I think we’re going to see a rotation out of some of the leadership in technology and a broadening into some value plays, so I definitely think that should be a tailwind for the more resource-heavy TSX Index. And then I think we’ll see a catch up in the U.S., especially in some of the dividend plays.
Speaking of a potential shift away from some of the technology leaders, do any of the ‘Magnificent 7’ stocks still look positive to you?
I think Amazon and Alphabet have retained their positive technical profiles. However, we are definitely seeing signs that some of the other ones are starting to weaken.
Earlier you were talking about commodities and how there’s a rotation taking place to resources and away from paper assets. Which commodities do you like?
Gold, copper and lumber.
Oh, not silver as well?
The problem with silver right now is that it has gone parabolic. I’m not saying it can’t continue to go higher, but we have a discipline and a process.
The next upside target on gold is near $5,000. Copper is $6 followed by $6.50. The next upside on lumber is $720.
What is the key message from your 2026 outlook report?
The key message is that 2026 should see a broadening of the rally. It should not just be led and focused on the U.S. ‘Mag 7’, and this should be broadly very positive for the TSX Composite Index. And if the trends that we are seeing that are trying to take hold remain in place, then the next call in five to 10 years should be very positive for Canadian equities.
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