'On the macro front, we're really in for a lot of uncertainty': Murray on CUSMA renegotiations

Key Concepts

• Economic Uncertainty (Canada 2026): Predicted limited economic growth (1.2%) due to CUSMA renegotiations and unpredictable US politics.
• K-Shaped Consumer Recovery: Divergence in consumer spending based on income level – strong spending at the high end, pressure at the lower end.
• CUSMA (Canada-United States-Mexico Agreement): The free trade agreement opening July 1st, currently protecting Canadian industry.
• Stock Picking vs. Index Growth: A shift towards focusing on individual stock selection due to macroeconomic uncertainty.
• Nuclear Energy Sector: Significant growth potential, particularly for AtkinsRéalis due to their “can do” technology and broader infrastructure involvement.
• Post-Pandemic Recovery (NFI Group): Expected strong earnings recovery for NFI Group due to record backlogs and favorable funding.

Economic Outlook for Canada in 2026

Chris Murray, Managing Director of Institutional Research at ATB Capital Markets, anticipates continued economic uncertainty in Canada throughout 2026. He projects a limited economic growth rate of approximately 1.2% for the year, primarily attributed to the renegotiations of the North American Free Trade Pact (now CUSMA) and the volatile political landscape in the United States. Murray emphasized that the level of uncertainty currently surpasses levels seen in 2025, particularly with the implementation of tariffs. He stated, “we think individual stock picking is going to maybe take over from kind of broader economic growth or or index growth,” suggesting a need for a more selective investment approach.

The Diverging Canadian Consumer Landscape

The discussion highlighted a “K-shaped” consumer recovery, a term used to describe the uneven economic recovery across different income brackets. While consumers at the higher end of the income spectrum are demonstrating robust spending on luxury goods, automobiles, and travel, those at the lower end are facing continued pressure on wages, employment security, and overall consumer spending. This observation aligns with commentary from US retailers noting consumers “trading down” in certain categories. However, demand for travel and luxury vehicles remains strong, representing a bright spot in the automotive market.

Sector-Specific Opportunities: Air Canada

Air Canada was identified as a favored stock, with a $32 price target and an “outperform” rating. The anticipated upside is driven by strong travel demand, particularly from baby boomers and Canadians seeking both international and domestic travel. Continued business travel and the introduction of new aircraft enabling service to new destinations are also contributing factors. Murray noted the demand picture is “very healthy robust.”

AtkinsRéalis: Benefiting from Infrastructure and Nuclear Growth

AtkinsRéalis (formerly SNC-Lavalin) presents a compelling investment opportunity due to three key factors. Firstly, the company is positioned to benefit from increased construction activity in both Canada and the US. Secondly, organic growth rates have been consistently strong, exceeding normal levels in recent years. Thirdly, AtkinsRéalis is poised for growth through mergers and acquisitions (M&A). A particularly significant aspect of AtkinsRéalis’s potential lies in its nuclear business, specifically its “can do” technology and involvement in small modular reactors (SMRs) and broader nuclear infrastructure projects. The company has a strong footprint in Ontario, Canada, and is actively collaborating with firms in the US, Europe, and the UK. Murray stated that nuclear energy is expected to be “a big driver over the coming years.”

NFI Group: Post-Pandemic Recovery in Bus Manufacturing

NFI Group, a bus manufacturer, is expected to experience a strong earnings recovery. This is attributed to record-high backlogs, a favorable funding environment, and the company’s ability to manufacture on both sides of the US-Canada border, providing insulation against potential tariff impacts. Murray predicted “very very strong earnings growth this year” and a corresponding re-rating of the shares. He noted the company is now positioned to benefit after navigating the challenges stemming from the pandemic.

Logical Connections & Synthesis

The conversation flowed logically from a broad macroeconomic outlook to specific sector and company analyses. The initial discussion of economic uncertainty and the K-shaped recovery set the stage for identifying companies positioned to thrive despite the challenging environment. The selection of Air Canada, AtkinsRéalis, and NFI Group was presented as a strategy to capitalize on specific growth drivers within their respective industries. The overarching theme was a shift from relying on broad economic growth to focusing on individual stock selection based on unique company fundamentals and favorable market conditions.

The key takeaway is that while Canada faces economic headwinds in 2026, strategic investment in companies with strong fundamentals and exposure to growth sectors – such as travel, infrastructure, and nuclear energy – can yield positive returns. The emphasis on “stock picking” underscores the importance of a nuanced and selective approach to investment in the current economic climate.