SERIES
Quarterly Market Update
Our quarterly market outlook, presented by Fidelity's Asset Allocation Research Team (AART) uncovers major themes in the global financial markets, as well as investment insights and market forecasts for the quarter.
Market summary: Uncertainty persists as markets reprice risk
Second Quarter 2026
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- Markets: Global markets experienced heightened volatility in Q1 as geopolitical conflict and rising energy prices pressured both equities and bonds, while commodities posted strong returns.
- Economy: The US economy showed resilience despite a softening labor market, with ongoing inflation pressures driven by tariffs, energy prices, and services costs keeping policy uncertainty elevated.
- Investments: Commodities and energy led asset class performance amid inflation concerns, while value stocks outpaced growth and fixed income offered increasingly attractive income opportunities
- Valuations: Higher yields have reset fixed income valuations closer to long-term averages, while equity performance diverged by sector and style as markets repriced risk and growth expectations.
About the Asset Allocation Research Team
AART conducts fundamental and quantitative research to develop asset-allocation recommendations for Fidelity's portfolio managers and investment teams. AART generates insights on macroeconomic, policy, and financial-market trends and their implications for strategic and active asset allocation
Market summary: Uncertainty persists as markets reprice risk
Q1 markets took a pause as concerns about the viability of artificial intelligence investments rose to the forefront, and global equity and bond markets declined as the conflict in Iran took center stage. While both stocks and bonds came under pressure, commodities posted strong returns.
Oil markets soared, spiking as high as $120 per barrel in response to the conflict in Iran. The current oil price is higher than the prices of contracts for future delivery—a scenario that suggests the market anticipates a relatively fast resolution, followed by a steady decline in energy costs.
The financial landscape remains incredibly dynamic, and there is no shortage of trends that are defining the 2026 market. Investors face unknowns regarding tariffs, sticky inflation, policy volatility, government debt, and interest rate uncertainty. The ongoing market challenges and geopolitical uncertainty reinforce the importance of diversification in fixed income and inflation-resistant assets.
Economy/macro: A variety of business cycle dynamics
The US economy showed solid economic activity despite softness in the job market. The broader global economy remains in a solid, unsynchronized expansion with international policies underpinning growth.
Ongoing demographic and labor market pressures: The labor market continued to soften throughout Q1, but low unemployment claims suggest recession risk is minimal. Fidelity’s proprietary data on 20 million payrolls highlights an increase in job growth that may signal stabilizing labor demand, and tight supply from stricter immigration policy and an aging workforce has prevented a significant rise in the unemployment rate. Positive wage growth and strong household balance sheets supported consumers, although lower income households saw slower net worth and wage growth. The US consumer is less sensitive to energy prices compared to history; however, the economy is more sensitive to large swings in asset prices, as most of the wealth is concentrated in older households and stocks.
Inflation remains above target: Tariffs have contributed to rising goods prices, keeping inflation above the Fed’s 2% target. Inflation in the housing and services sectors has moderated but remains elevated. Markets raised their inflation expectations as costs associated with tariffs, rising energy prices, and stable US growth may prolong how long it takes for inflation to normalize.
While the Fed and markets were leaning toward further easing in 2026, oil supply shocks added more uncertainty to both headline and core inflation, leading the market to reassess the likelihood of further cuts.
See our interactive presentation for an in-depth analysis
Asset markets: Strong earnings despite volatility
Commodities and energy stocks led the charge in Q1 amid ongoing global inflation concerns. Markets also experienced modest gains from value and mid-cap equities.
Commodities: Commodities (+24.4%) gained the most, driven by persistent inflation, ongoing geopolitical tensions, and demand for real assets in a volatile environment.
Fixed income: Fixed income markets experienced higher yields across all major categories, led by higher Treasury yields. Most fixed income asset classes ended Q1 at or above their 50th percentile of yields, which indicates that bond valuations are almost in line with long-term averages and offer stable income within a diversified portfolio. Credit spreads, however, remained historically tight.
Equities: By sector, energy (38.2%) surged in Q1 as oil prices spiked, whereas communication services (−6.9%) and information technology (−9.1%) sectors declined. By region, international equities ended on a varied note. Canada (1.3%) and Latin America (14.6%) showed signs of strength, while other regions, including Europe (−2.8%) and Emerging Asia (−1.5%), declined. By investment style, value stocks (+2.2%) led the way, while growth stocks (−9.5%) and large caps (−4.5%) lagged.
Outlook: We continue to expect substantial volatility, but periods of heightened uncertainty often correspond with potential innovation and market leadership opportunities, such as advancing artificial intelligence-driven capabilities. Secular changes may also provide greater global active opportunities across countries, industries, and companies.
Looking ahead, we believe maintaining a well-diversified portfolio and focusing on long-term objectives remain critical for investors.
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The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.
The Magnificent 7 stocks include Alphabet (parent company of Google), Amazon, Apple, Meta Platforms (parent company of Facebook and Instagram), Microsoft, Nvidia, and Tesla. Due to their size and performance, these stocks accounted for roughly one-third of the S&P 500’s total market capitalization at the end of 2024.
The gold industry is extremely volatile, and investing directly in physical gold may not be appropriate for most investors.
Standard & Poor’s/Loan Syndications and Trading Association (S&P/LSTA) Leveraged Performing Loan Index is a market value-weighted index designed to represent the performance of U.S. dollar-denominated institutional leveraged performing loan portfolios (excluding loans in payment default) using current market weightings, spreads, and interest payments.
The securities of smaller, less well known companies can be more volatile than those of larger companies.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign investments are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets.
MSCI Canada Index is a market capitalization-weighted index designed to measure equity market performance in Canada.
ICE BofA U.S. High Yield Index is a market capitalization-weighted index of U.S. dollar-denominated, below-investment-grade corporate debt publicly issued in the U.S. market.
MSCI Europe Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of the developed markets in Europe.
MSCI EM Asia Index is a market capitalization-weighted index designed to measure equity market performance of EM countries of Asia.
In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets.
Bloomberg Long U.S. Government Credit Index includes all publicly issued U.S. government and corporate securities that have $250 million or more of outstanding face value.
Bloomberg U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L) is a market value-weighted index that measures the performance of inflation-protected securities issued by the US Treasury.
Bloomberg Commodity Index measures the performance of the commodities market. It consists of exchange-traded futures contracts on physical commodities that are weighted to account for the economic significance and market liquidity of each commodity.