'Geopolitical events tend to have long-lasting impact on markets': Hill on U.S. action in Venezuela

Canadian Energy Sector & 2026 Market Outlook – Horizon Investment Insights

Key Concepts:

• Mag 7: Refers to the seven largest US technology companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) that have driven significant market gains.
• Alpha Trade: An investment strategy aiming to outperform the market benchmark, requiring skillful stock selection and market timing.
• Beta Trade: An investment strategy mirroring the market’s overall performance, typically through broad index funds.
• Synchronized Upswing: A simultaneous economic expansion across multiple global economies.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield (1 basis point = 0.01%).
• Defensive Equities: Stocks of companies that tend to maintain stable earnings and dividends even during economic downturns.
• Long Duration Bonds: Bonds with a longer time until maturity, generally more sensitive to interest rate changes.
• Flight to Safety: Investor behavior of moving assets to safer investments during times of market uncertainty.

I. Initial Market Reaction to Venezuelan News & Short-Term Stability

The Canadian energy sector experienced losses yesterday following news from Venezuela. Zachary Hill, Head of Portfolio Management at Horizon Investment, suggests this reaction is likely short-lived. He posits that geopolitical events typically have lasting market impacts only when they intersect with real economic variables, a condition not currently present. He states, “geopolitical events tend to have longlasting impacts on markets when they interact with real economic variables.” He anticipates the market will likely “look past” the current situation unless it escalates or broadens. Recent US market behavior supports this view, with investors seemingly discounting growing risks.

II. 2026 Market Outlook: Broadening Participation & Stimulus

Horizon Investment maintains a positive outlook for 2026, anticipating a broadening of market participation. This contrasts with the previous focus on the “Mag 7” companies. Hill believes productivity gains and efficiencies will spread throughout the economy, fueled by substantial stimulus packages in both the US and internationally. This combination is expected to drive broader market participation within both US and global equities, creating a favorable environment for diversified investors after “a few tough years.” He notes the potential for a significant market increase, jokingly calculating that the current pace would equate to a 72 million% annual gain (acknowledging this is unsustainable).

III. The Shifting Dynamics of the “Mag 7” & AI Trade

The discussion highlights a potential “shakedown year” for the “Mag 7” and the AI theme. Recent intra-Mag 7 movements indicate a shift from high correlation – where all stocks moved together – to more discerning investment choices. Hill observes that investors are becoming more selective in expressing their interest in AI-related themes. He characterizes the AI trade as having been a “beta trade” for a long time, powering the market, but now transitioning into an “alpha trade,” requiring more skillful stock selection. This shift signifies a move towards the monetization phase of AI technology. Comments from Wang regarding reduced demand for cold chillers and impacts on memory storage are cited as examples of this increased discernment.

IV. Investment Strategy: Where to Invest & Avoid

Horizon Investment’s current strategy favors growth and anticipates a global synchronized upswing. They are avoiding defensive equities and long-duration bonds. Within the US, they recommend smaller-cap technology, equal-weight technology, and cyclicals, particularly banks (both large-cap and regional). Internationally, they advocate for owning international stocks over US index funds, anticipating potential dollar depreciation (though less pronounced than in 2025) and a resulting tailwind for value-oriented international sectors.

V. Monitoring Key Indicators & International Market Performance

The firm is closely monitoring investor flows and the actual realization of the anticipated growth upswing, particularly during earnings season. The behavior of the US dollar is also a key focus, with a recent dollar rally potentially linked to “flight to safety” related to Venezuelan uncertainty. While international markets have outperformed Canada and the US, concerns about peaking are being addressed through ongoing monitoring of these indicators.

VI. Federal Reserve Policy & Rate Cuts

Regarding US Federal Reserve policy, Hill believes the Fed is currently “on pause” after cutting rates by 175 basis points from the peak and 75 basis points in the previous year. He anticipates these cuts will continue to filter through the economy, positively impacting both markets and the economy. He suggests that after the current Fed Chair’s term ends in May, policy changes will be less predictable, but doesn’t foresee a dramatic shift. He notes the internal disagreement within the Fed, even with a consensus-driven chair, suggests the Fed’s influence may diminish in 2026, which he views as a positive development for investors. He states, “the amount of disagreement we have at the Fed…speaks to just this environment where the Fed’s going to be less relevant in 26 than they were over the last few years.”

Conclusion:

Horizon Investment projects a positive market outlook for 2026, driven by broadening market participation, global stimulus, and the evolving dynamics of the AI trade. Their investment strategy emphasizes growth, cyclicals, and international exposure, while avoiding defensive assets. Ongoing monitoring of investor flows, the US dollar, and Federal Reserve policy will be crucial in navigating the evolving market landscape. The firm anticipates a shift from a market dominated by a few large tech companies to a more diversified and opportunity-rich environment for investors.