Newcastle and Norwich were both relegated from the Premier League last season, and they have made positive starts to the new campaign.
Newcastle are in second place in the Championship table, while Norwich are in fourth.
And Pearce said: “I think Norwich and Newcastle have the best squads in this league, and I fully expect those two to be in the running at the end of the season.
Nottingham Forest manager Stuart Pearce applauds the fans at the end of the match
“But Newcastle are on form at the moment, and they will take some stopping.”
Newcastle won their last match 6-0 against Queens Park Rangers at Loftus Road yesterday evening.
The Magpies have now won five games on the bounce to climb up the Championship table and put pressure on current leaders Huddersfield Town.
Norwich, meanwhile, also picked up three points last night - by beating Wigan Athletic 2-1 in front of their own supporters.
Newcastle are next in action against Wolverhampton Wanderers at the weekend, while Norwich face Nottingham Forest.