As investors look ahead to 2026, uncertainty around interest rates, inflation and global growth continues to shape market sentiment. While mega-cap stocks have dominated attention, valuation gaps have widened across Canada’s mid-cap space.
BNN Bloomberg spoke with Jerome Hass, partner at Lightwater Partners Ltd., about the macro backdrop, expectations for rate cuts, pressure on technology stocks and why select Canadian mid-caps may offer long-term opportunity.
Key Takeaways
- Markets are awaiting delayed U.S. labour data, while Canadian inflation readings have increased expectations for potential rate cuts in 2026.
- Valuation concerns and crowded positioning have weighed on U.S. mega-cap technology stocks, even as a seasonal year-end rally remains possible.
- Canadian mid-cap stocks remain under-owned due to limited participation from pension funds and institutional investors.
- Dislocations have emerged between earnings growth and valuations, particularly in non-bank financial companies versus major banks.
- Wide valuation gaps in Canadian mid-caps have historically created opportunities for long-term investors willing to be patient.
Read the full transcript below:
LINDSAY: We’re approaching the end of 2025, so let’s get a market recap of the year and a look ahead at what to watch in 2026. We’re joined by Jerome Hass, partner at Lightwater Partners Ltd. Good to have you with us this morning.
JEROME: Thanks for having me.
LINDSAY: Let’s start with the markets today. What are you seeing? Are we heading lower because of the data coming out this week?
JEROME: Markets are largely flat this morning, and investors are really waiting on long-anticipated data. Because of the U.S. government shutdown, we haven’t had U.S. labour data for several weeks, so markets are focused on that release. I don’t expect much movement today until that data comes out tomorrow morning.
LINDSAY: Do you think that could affect the TSX as well?
JEROME: Absolutely. We always look to what’s happening south of the border, and it does impact Canadian markets. That said, we did see some positive inflation data in Canada today, which I think bodes well for potential rate cuts next year.
LINDSAY: Inflation held steady at 2.2 per cent. How is that affecting markets today, and how might it shape things heading into 2026?
JEROME: The Bank of Canada held rates last week because it remains concerned about inflation and didn’t see a reason to move early. With another inflation reading at reasonable levels, and core inflation actually below target, it increases the likelihood of rate cuts in 2026.
LINDSAY: We’ve also seen tech stocks slide over the past couple of weeks. Do you expect any kind of rebound before year-end?
JEROME: We do expect a Santa Claus rally — about 80 per cent of the time we see one before year-end — so the odds are in favour of that. That said, we are not bullish on the tech sector, particularly U.S. mega-cap tech. We actually have a short position on the so-called Magnificent Seven. Valuations and hype are extreme, and so much money has flowed into those stocks that once that flow slows, we think they can continue to pull back to lower levels.
LINDSAY: You’ve said there are still plenty of opportunities in the Canadian mid-cap space. You have two names investors should watch. Let’s start with the one you describe as the “Bloomberg of trade.”
JEROME: Descartes is a long-term holding for us. It really is the Bloomberg of international trade and commerce. If you’re an airline, freight forwarder or trucking company, you essentially have to use Descartes’ software. What we like is the business model and the high level of recurring revenue. As the former CEO once said, on the first day of the quarter they know where about 90 per cent of revenue is coming from, and they spend the rest of the quarter finding the remaining 10 per cent.
Unfortunately, the stock was taken to the woodshed this year. Before releasing results in early December, it was down about 32 per cent at the lows, driven by fears around artificial intelligence and concerns tied to Trump-era tariffs and global trade. What changed was the third-quarter results, which showed seven per cent organic growth — well above expectations. That highlighted the resilience of the business model, and the stock jumped about 14 per cent on the day.
LINDSAY: Your other pick is goeasy Financial. Why do you like it?
JEROME: It’s been a difficult year for the stock. The new CEO recently resigned for health reasons, there was a short report in September that pressured the shares, and the market reacted negatively to third-quarter results that included an additional $12 million in provisions.
What’s interesting is that goeasy has sold off on recession fears in Canada, while the major banks are trading at all-time highs. Canadian banks are trading around 14 times earnings, while goeasy is trading around six-and-a-half times next year’s earnings. Six quarters ago, goeasy and Royal Bank were trading at similar valuation multiples. Today, the gap between them is the widest it’s ever been. Even on reduced estimates, goeasy is expected to grow earnings by about 25 per cent next year, versus roughly seven per cent growth for Royal Bank. At these levels, we think goeasy looks attractive.
LINDSAY: Why do you think so many Canadian mid-cap companies remain under-followed and undervalued?
JEROME: First, Canadian pension funds largely don’t invest domestically, and there’s a trickle-down effect from that. Second, the big six banks and their brokerage and wealth arms have largely stepped away from mid-cap and small-cap investing.
Twenty years ago, you could buy a good mid-cap stock and eventually large institutions would come in and re-rate it. Today, that buyer often never shows up. As a result, we see wide valuation gaps between mid-caps and large caps. As a country, we’re concentrating capital in oligopolies — banks, utilities, telecoms and grocery chains — rather than deploying capital more efficiently, and that ultimately affects productivity.
LINDSAY: Jerome Hass, partner at Lightwater Partners Ltd. Thanks very much for joining us.
---
This BNN Bloomberg summary and transcript of the Dec. 15, 2025 interview with Jerome Hass are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
