Looking for Upside: BMO's Sadiq Adatia Breaks Down the 2026 Equity Outlook

“We still want to be overweight equities.” That sentence, delivered calmly and confidently by Sadiq Adatia, Chief Investment Officer of BMO Global Asset Management, encapsulates the thesis of this wide-ranging macro conversation with BMO ETFs’ Managing Director, Head of ETF & Alternatives Strategy, Bipan Rai. At the 25th episode milestone of the Open Outcry podcast¹, the tone is thoughtful, cautiously optimistic, and grounded in a belief that U.S. equities — despite the complexities — are heading into 2026 with resilience on their side.

Adatia and Rai don’t trade soundbites. They construct a narrative built on fiscal policy, monetary inflection points, inflation persistence, sector rotation, and factor-based equity exposure. What emerges is a clear-eyed view of where risks lie and, more importantly, where opportunities are likely to surface.

The Setup: Macro Policy Cues and the Big Beautiful Bill

Rai’s intro frames the central banks’ dance — with the Bank of Canada holding and the Fed cutting — as the prelude to a market environment shaped by divergence and debt-funded stimulus. The key focus? The so-called "One Big Beautiful Bill" — a massive U.S. fiscal package poised to inject new momentum into the consumer economy.

Adatia is clear: “It’s going to be a stimulus that’s coming into the market just when the market is at the point of looking at valuations.” Not just short-term sugar — but long-term margin support. He points to consumer-directed tax cuts and potential disbursements as elements that “keep that sentiment going” and “continue to keep the market moving in the right direction.”

Rai rightfully raises the inflation concern — “the optimal way to fight inflation is not by handing households more cash.” But Adatia’s view remains that inflation will hold steady — not necessarily fall — which creates space for equity markets to breathe without running into a monetary tightening wall. “If the consumer [is] spending then they can continue to keep majority of those margins going at a higher volume,” Adatia explains.

Equity Allocation: A Broadening Story

Adatia’s call for an overweight in equities is not based solely on fiscal firepower. It’s supported by earnings breadth — a marked departure from 2023 and 2024’s tech-centric surge.

“We’ve seen good positive surprises across the board,” he notes, emphasizing that the quality of earnings — not just quantity — was expanding beyond the Magnificent Seven. Even AI-centric capex, he argues, would ripple into other sectors: “It does benefit the broader sectors… not necessarily job cuts, but just less of job growth going forward. And that will help the bottom line.”

Rai pushes the conversation into specifics: which sectors? Adatia jumps right into it.

• Financials: “You're potentially going to have a steeper yield curve… more loan growth… dividend yields are going up.”
• Consumer Discretionary: Especially the “higher end of the consumer side,” where wealth effects and stimulus intersect.
• Healthcare: “Undervalued, under-owned… valuations look good.”

He is also bullish on Canadian banks despite weaker loan growth. Why? “The wealth management arms… have been very, very good.” Flush capital, expanding dividends, and sectoral diversification support the thesis, even as the spectre of USMCA renegotiations tempers full-throttle enthusiasm.

Factors, Regions, and Rotations: Parsing the Landscape

A particularly thoughtful section emerged when Rai and Adatia examine factor investing. “Quality still remains at the focus,” Adatia says, especially as small-cap hiring surveys start to diverge from larger firms’ caution. He notes early signs of life in small-cap sentiment and hinted that 2026 could be the year long-ignored factors rotate back into favour.

Value vs. growth? A push toward neutrality. “We're kind of tilting to growth at the moment... [but] probably a bit more neutral on that” going forward.

Geographically, Adatia is unequivocal: “The U.S. is the healthiest economy… best companies… alignment to all the themes.” He discounts Europe due to political noise and consumer headwinds, remains cautious on Canada, and offers a notably more constructive view on emerging markets, citing:

• Weakening USD tailwinds
• China-India tailwinds
• Easing geopolitical tension (at least temporarily)

“We’ve got a ceasefire for a year almost… India is also bouncing back.”

Fixed Income, Gold, and Alts: The Defensive Triad

On bonds, Adatia is blunt: “I go into the boring category.” One rate cut here or there doesn’t create a bullish thesis. He frames fixed income as a “defensive hedge”, clipping coupons in case of volatility, but not much more.

Gold, however, is different.

“Especially if you go back to the thesis that you might see a weakening US dollar — that’s good for gold,” he emphasizes. Central bank and retail buying patterns continue to support the metal. While not increasing their allocation at current levels, BMO GAM holds an overweight stance.

Alternatives get a nod too, particularly private infrastructure and hedge funds with absolute strategies. For Adatia, alts offer “a return diversifier more than a return enhancer” — with embedded inflation protection a key consideration.

High Conviction for 2026: Stick With What’s Working

Adatia’s final word is a call to stay the course, particularly for equity allocations. “If it’s not broken, there’s no need to fix anything here.” But he makes an important distinction: this isn’t about doubling down on big tech — it’s about shifting within equities to where under-appreciated value and relative resilience live.

“It is going to be more broad based… take some profits in the areas that have done exceptionally well and move it to some of the areas that are probably more prone to win this year.”

The Final Take

This isn’t a flashy conversation. Both Rai and Adatia shared macro fluency gives listeners a blueprint for 2026 that goes beyond headlines and into portfolio-level decisions.

The message? Inflation may not fall much. Fiscal stimulus may not be entirely wise. But fundamentals — earnings, margins, consumer strength — still tilt in favour of risk.

And in Adatia’s words, that means keeping one foot firmly in the equity camp. “Keep it going the way it is.”

Footnotes:

1 "The Open Outcry Podcast: Looking for Upside Surprises in Equities…." BMO ETF Dashboard.