Capitalizing on Rational Optimism: Fidelity Strategists’ 2026 Market Outlook

Reflecting on the first half of 2026 provides a clear roadmap to strategize for the remainder of the year. Before that can occur, however, it’s imperative to check the pulse on the current state of the market and posit what may happen next. Moderated by TMX VettaFi Head of Sector & Industry Research Roxanna Islam, a recent webinar, Market Outlook and Portfolio Positioning for the Rest of the Year, featured Fidelity Investments strategists Brad Pineault (VP, Head of Capital Market Strategists) and Craig Ebeling (VP, Head of ETF Strategists). Both Pineault and Ebeling outlined their market outlook for the remainder of 2026 and into 2027.The Fidelity strategists’ stances could be best summarized as “rational optimism.” Pineault and Ebeling urged financial practitioners and investors alike to separate the short-term headline noise from fundamental tailwinds.Key Takeaways: Fidelity strategists maintain a stance of “rational optimism” on a mid-cycle economic expansion. This trend is fueled by agentic AI adoption, stable labor markets, and strong household balance sheets. Investors are actively broadening out into cyclical sectors like industrials, energy, and infrastructure. Additionally, investors are utilizing active ETFs for international diversification and drawdown protection. Corporate earnings fundamentals, rather than short-term headline noise or midterm election volatility, remain the primary anchor for long-term equity market performance. See More: The Active Advantage in Emerging Markets With Fidelity’s FFEMCore Themes & Macroeconomic AnalysisPineault identified various themes shaping the 2026 investment backdrop. First and foremost, the artificial intelligence (AI) boom continues as an early-stage productivity driver that is rapidly shifting from a generative format to agentic AI. In turn, this will translate to compute demand growing exponentially. All eyes continue to be on the Fed and new chair Kevin Warsh. Regarding fiscal and monetary policy, Pineault downplayed market fears about Fed rate decisions. He pointed out that the U.S. economy is amid a mid-cycle expansion. Moreover, landmark legislation may provide permanent accelerated depreciation incentives for corporate capital expenditures. Furthermore, the U.S. labor market has stabilized into an equilibrium state that mitigates severe wage-push inflation despite short-term spikes in energy prices. Finally, there are robust household balance sheets. These are supported by elevated asset prices in 401(k)s and IRAs, which continue to power sustained consumer spending through a strong wealth effect.Market Breadth & Implementation via Active ETFs“Broadening out” are two words circulating in the markets lately. While growth equities remain central to long-term innovation, Fidelity’s Ebeling emphasized a shift toward broadening market participation across diverse sectors. Live poll results during the webinar revealed that 44% of respondents prioritized broadening their portfolio for exposure to cyclical sectors such as industrials, energy, and physical infrastructure. Managing volatility through fixed income and dividend equities followed at 25%. Meanwhile, 19% favored growth themes like AI and automation, and 12% prioritized alternative investments for resilience. Ebeling detailed how financial advisors are actively executing these themes using ETF strategies to capture alpha while mitigating downside risks. Accordingly, more advisors are turning to active management so that portfolio managers can select long-term winners rather than holding an entire benchmark index. Furthermore, active ETF flows in 2026 heavily reflect growing advisor demand for international diversification, large-cap value, and small-to-mid-cap exposures. To navigate ongoing geopolitical and policy-driven choppiness, active fixed income and hedged equity strategies remain critical tools for managing portfolio drawdowns. Ebeling highlighted the Fidelity Fundamental Large Cap Growth ETF (FFLG A-), which combines high-conviction ideas from top portfolio managers with the flexibility of an active ETF.Key Takeaways for InvestorsShort-term noise will be more audible amid earnings season. Pineault concluded that stock prices are ultimately supported by underlying corporate earnings rather than pure valuation expansion. “The ultimate compass point in all of this is the earnings, the direction that earnings are expected to move,” Pineault said. “If you can get that at least directionally accurate, then you have a fighting chance of doing quite well in the market.” While short-term volatility and midterm election cycles may induce market pullbacks, Fidelity strategists maintain that long-term investors should remain constructive. Investors can utilize active management and lean into structural growth while broadening overall portfolio exposure. For more news, information, and analysis, visit the ETF Investing Content Hub. Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles. 1274722.1.0