Markets climbed ‘walls of worry’ for much of this year, can they keep that up?

Financial markets in 2026 had a “tremendous wall of worry to climb,” says David Wong, Chief Investment Officer at CIBC Global Asset Management. The second year of the second Trump administration saw greater geopolitical complexity and the emergence of a conflict that has choked one of the world’s most vital energy corridors. Tariff and trade uncertainty continued for the world and for Canada. Bond markets have been volatile and yields on 10-year US treasury bonds rose to their highest levels since before the great financial crisis. Despite all those negative headlines, cost pressures, and a full-blown correction on Thursday, in early November the S&P 500 was still up around 7.5 per cent year to date. The TSX 60 was up over 13 per cent in the same period.

Wong believes that if investors and advisors start their approach from a list of those worries, they’re starting in the wrong place. Instead, he suggests operating from the baseline probability that markets rise over time and that in almost three quarters of calendar years, markets move up. Looking at 2026 in particular, he believes that the optimism around an emerging general purpose technology in artificial intelligence has helped markets climb their walls of worry over the year so far. The long cycle and transformative potential in AI, taken alongside the base assumption that markets tend to rise, should inform a more optimistic view of the markets while preparing advisors and investors for the prospect that changes can come with volatility.

“General-purpose technologies are not fast-cycle things. These are things that are going to be prolonged over decades,” Wong says. “That's a super positive force for the market. So I think we need to reframe the wall of worry a little bit and focus more on this big secular change that's taking place today. And so that's exactly how I think we are viewing the setup.”

Finding investor optimism

One of the core drivers for bearish outlooks this year has been the steady rise in interest rates alongside what Wong describes as “stubborn” rather than “rampant” inflation. He argues that the need to invest heavily in AI infrastructure has been the primary reason interest rates have moved up this year, pointing to an optimism around AI growth rather than pure pessimism about rising costs.

Earnings have also helped buoy sentiment. Earnings growth this year has outpaced price appreciation on the S&P 500, resulting in a relative pullback in valuation while prices for large-cap US equities have hit or exceeded all-time highs. Wong notes that this earnings growth has been broad, covering 10 of the 11 sectors on the S&P 500. While AI-related exposure in many of those sectors and companies has buoyed earnings, Wong notes that the breadth of this earnings growth should be taken as a positive.

The widening scope of the AI narrative has also played a role in this broader earnings growth. The number of companies exposed to AI infrastructure investment has grown rapidly from just Nvidia, in 2023, to most of the world’s chipmakers and hardware manufacturers. The story has grown enough to encompass energy utilities, minerals and mining companies, and construction vehicle manufacturers like Caterpillar. Despite all the companies that have enjoyed earnings and/or stock price bumps from the rise of AI, Wong notes that in the rise of past general purpose technologies like the internet, electricity, and the automobile, the builders of infrastructure haven’t realized the most long-term value. He believes something similar will eventually happen with AI

AI’s long-term role in markets, economies

Rather than seeing AI productivity gains and infrastructural demand as long-term tailwinds for the current crop of tech leaders, Wong says that AI will eventually be viewed more as a utility. It will be treated, in his view, as a social necessity upon which countless businesses rely, like electricity. Much like electricity, AI will not be assessed on an ROI basis. Wong believes that the technology will eventually power future industries like robotics. In the meantime, he notes that there will be speculative forces around AI which can result in overinvestment, even if AI is a productive technology in the long-term.

Liquidity is one factor that Wong is watching closely to assess questions of overinvestment, hype, and productive promise. He notes that without the AI buildout, much of the liquidity injected into the market during the COVID-19 pandemic would continue to find extremely unproductive outlets like NFTs and collectible cars, which he notes are typically wealth destroying and inflation-increasing because they lack any productivity returns. Now, however, that liquidity is chasing after very specific AI data center inputs, which seem to have direct productivity outputs.

The path to profitability for AI companies remains unclear, however, as huge costs of usage run into a lack of scalability. Wong accepts that there is now pressure for these AI companies to show return on investment and that a rise in bond yields has given many investors a healthier risk-free rate that they can use as an alternative to growth-driven equity allocations. While questions around immediate profitability and viability of certain AI companies remain, Wong insists that investors should keep looking to earnings growth as a north star for their longer-term performance.

“Fundamentals are still solid. Earnings growth is strong across the board and it's broad. We have to ask ourselves in the 20-year rearview, if we want to use a long enough timeframe, what do we know about earnings growth for the next 10 years or 20 years that looks different,” Wong says. “The headlines are always going to be scary, but we have to have an anchor, and the anchor is going to be earnings growth.”