Second Quarter 2026 Review

Personalized Portfolios account: Total Return Investment Approach

By Strategic Advisers, LLC

Market Landscape

Global markets posted strong second-quarter returns, driven by resilient economies, robust corporate earnings, and easing geopolitical tensions.

The Big Picture 

Global markets delivered positive performance during the second quarter, supported by improving investor sentiment and resilient economies.¹ Reduced tensions in the Middle East helped lower oil prices and decrease uncertainty around the outlook for global economic growth. As a result, both U.S. and international stock markets experienced positive returns over the quarter, despite some market volatility in June. Corporate earnings were a key source of stock market support. First-quarter earnings came in exceptionally strong, at almost double the typical annual earnings growth rate.² Bond markets had a decent quarter, as broad market bonds generated modest gains despite higher interest rates.³ Meanwhile, the U.S. Federal Reserve (Fed) left interest rates unchanged and reaffirmed its commitment to combating inflation. Inflation climbed to 4.1%, more than double the Fed’s 2.0% target.⁴ The Fed’s stance has likely tempered market expectations for additional interest rate cuts for the rest of 2026.

Looking ahead: 

The global economic environment remains constructive for investors. Market expectations for robust second-quarter corporate earnings growth may continue to support this outlook. Additionally, economic growth has largely been positive around the world despite uncertainty around oil prices. At the same time, periods of volatility are likely, particularly in areas of the market where valuations remain elevated (i.e. expensive). These areas may be more sensitive to unexpected developments in earnings or economic growth.

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Positioning Landscape

We have adjusted the strategy’s positioning to help manage risk and potentially mitigate the impact of inflation.

U.S. Stocks:

• We increased exposure to U.S. stocks as the outlook for earnings growth has remained strong in 2026, despite Middle East tensions.
• We favored value stocks and small- to mid-sized companies. These are areas of the market with lower valuations (i.e. inexpensive) that may benefit from a growing economy and broadening earnings growth beyond technology stocks.
• We have maintained less exposure to very large companies due to high valuations, as they may experience periods of volatility even as their earnings potential remains strong.
• Our focus has remained on core, research-driven managers that follow a disciplined process based on fundamental analysis of individual companies.
• We have some exposure to real estate stocks, including cell phone towers and self-storage facilities. We believe this real estate exposure could potentially help provide some protection from inflation.

International Stocks:

• We believe emerging markets may have stronger growth outlooks than international developed markets. As a result, we reduced exposure to international developed markets while adding exposure to emerging markets.
• We have remained focused on including exposure to smaller international developed market companies.
• Within emerging markets, we’re focused on value and quality companies.^5a
• Like U.S. stocks, we have less exposure to very large companies due to high valuations within developed markets.
• Within emerging markets, we have lower exposure to India due to high valuations and a less compelling growth outlook.

Bonds:

• We decreased exposure to investment-grade bonds as higher inflation may lead to some bond market volatility.
• We maintained duration^5b similar to the bond benchmark, the Bloomberg U.S. Aggregate Bond Index. This means that as interest rates rise or fall, the strategy’s bond exposure is likely to react similarly to the benchmark.
• When compared with the strategy’s benchmark allocations, we have more exposure to mortgage-backed securities (MBS), intermediate Treasuries, and Treasury Inflation-Protected Securities (TIPS), with less exposure to corporate bonds and long-duration bonds. We believe MBS have had a more favorable economic outlook than Treasuries and more attractive valuations than corporate bonds.
• We have increased exposures to TIPS and increased commodity exposure to help guard against potential inflationary pressures.
• Against the backdrop of historically low default risk and a growing economy, we have maintained an allocation to high-yield corporate bonds in an effort to provide additional income.

Other:

• Finally, we have exposure to alternative investments with low correlation to traditional asset classes (i.e. stocks and investment-grade bonds). Alternative investments have the potential to provide stability during periods of stock and/or bond market volatility.

The following investment types discussed here are for general informational purposes. All asset class categories referenced may not be represented within your specific strategy.

Asset Classes – A Closer Look

Both stocks and bonds rose in the second quarter.

U.S. Stocks⁶
15.7% QTR

Healthy corporate earnings fueled strong U.S. stock market performance.

U.S. stocks reported stellar earnings for the first quarter with the outlook for second quarter looking just as strong.⁷ Elevated earnings, plus a solid outlook for the future, combined with easing tensions in the Middle East supported U.S. stock returns.

Small company stocks returned an impressive 21.5%, outperforming large company stocks, which returned 15.1%.⁸ Small company stocks experienced healthy returns due to low (i.e. inexpensive) valuations at the start of the quarter. However, mid-sized company stocks lagged their larger counterparts.⁹ Mid-sized stocks underperformed because they lack the information technology stocks that make up a formidable component of the large company stock space. Growth stocks outpaced value stocks as easing Middle East tensions caused markets to shift their attention from inflation and interest rates toward a renewed focus on earnings growth.¹⁰

At the sector level, information technology, communication services, and consumer discretionary sectors all benefited from earnings growth and falling oil prices.¹¹ Meanwhile, energy stocks lagged due to falling oil prices. The utilities and consumer staples sectors also lagged.

Declining energy and precious metal prices during the quarter caused commodities to drop by 8.1%.¹² This overall drop in commodities occurred despite rising industrial metal prices (e.g. copper). Real estate investments rose 10.7%, an impressive quarter but still lagging the broader stock market as the Fed appeared less likely to cut interest rates (real estate stocks have historically performed well when interest rates have declined).¹³

Struggling energy, utilities, and consumer staples sectors caused dividend-paying stocks to have a challenging quarter. Additionally, dividend-paying stocks tend to lag the broader market in periods when investor enthusiasm is concentrated in high-growth areas such as information technology. This was the case last quarter when AI- and technology-driven companies helped propel the S&P 500 Index to positive returns of 15.2%.

International Stocks¹⁴
14.6% QTR

International stocks delivered strong returns, with emerging market stocks outperforming both international developed market and U.S. stocks. 

Easing tensions in the Middle East helped create an environment for positive international stock returns. Looking ahead, earnings and economic growth may support further stock rallies. Exposure to international stocks may help diversify against U.S. stock volatility, particularly through international developed market stocks, which tend to have less exposure to volatile information technology stocks.

International developed markets produced positive returns of 11.0%, but lagged both U.S. stocks and emerging market stocks.¹⁵ Japanese and German stocks led international developed markets with strong economic growth forecasts.¹⁶ Meanwhile, the U.K. lagged due to a middling economic growth outlook. Canadian stocks returned 6.1%, also lagging other developed market countries.¹⁷ Canadian stocks came under pressure as falling oil prices put downward pressure on the energy sector, a major component of the country's stock market.

Emerging markets had a stellar quarter, returning 24.0% to soar past U.S. stocks.¹⁸ Growth within the information technology sector fueled this rally in emerging market stocks, led by South Korea and Taiwan.¹⁹ Brazilian stocks fell as oil prices dropped. Meanwhile, Chinese stocks were nearly flat as the country’s economic outlook remained tepid.

Bonds²⁰
0.7% QTR

Bond markets delivered moderate returns in the second quarter. 

Bonds faced a challenging environment during the quarter. Interest rates rose, putting downward pressure on bond prices, while the Fed signaled that interest rates will likely remain steady for the remainder of the year. Nevertheless, investment-grade bonds experienced modest gains despite these challenges, due to healthy bond yields. Tight credit spreads signaled lower default risk and positive fundamentals for investment-grade corporate bonds, offsetting the difficult interest rate environment.²¹ Investment-grade corporate bonds returned 1.4%,²² substantially outperforming U.S. Treasuries, which ended the quarter at 0.3%.²³ The yield curve flattened as the short-to-intermediate end of the yield curve rose, while the longer end modestly shifted downward. As a result, limited duration and intermediate-term bonds underperformed broad-market investment-grade bonds.²⁴

Overall, municipal bonds returned 2.5%, outpacing other investment-grade bonds.²⁵ Similar to investment-grade bonds, limited duration and intermediate municipal bonds produced positive returns, but underperformed their broad market counterparts, as the municipal bond yield curve flattened.²⁶ Credit fundamentals across municipal bond maturities remained stable and June marked the beginning of the municipal market’s strongest seasonal period. Municipal bonds often experience robust demand in the summer because coupon payments, bond maturities, and reinvestments typically increase during the season while supply tends to remain limited. Additionally, municipal bond issuance and investor demand were healthy during the quarter, supporting strong returns. From a sector perspective, revenue bonds rose by 2.6%, outperforming general obligation (GO) bonds, which returned 2.4%.²⁷ Going forward, municipal bond supply may decline in the second half of the year if interest rates remain high. Within this higher-rate environment, some issuers (e.g. hospitals and higher education) may wait to borrow until after November’s midterm elections when they have more clarity around the potential impact of new government policies.

High-yield bonds outperformed investment-grade bonds, returning 2.5% for the quarter, as the U.S. economic outlook improved with easing tensions in the Middle East.²⁸ TIPS also outperformed other investment-grade bonds, returning 0.9% for the quarter, as inflation remained above the Fed’s long-term target.²⁹

Looking ahead, bond investors may miss out on the potential for rising prices from interest rate cuts, since the Fed seems poised to keep interest rates steady for the remainder of 2026. However, healthy yields may still lead to positive returns for bond investors.³⁰

For Additional Information, please view our Quarterly Market Perspective (opens in new tab or window)

The foregoing commentary was prepared by Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company. (opens in new tab or window)

The foregoing commentary was prepared by Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company.

¹ Dow Jones U.S. Total Stock Market Index and MSCI All Country World ex U.S. Index (Net MA Tax), as of 6/30/2026. 

² FactSet, based on year-over-year EPS growth for the S&P 500 Index, as of 6/30/2026. 

³ Bloomberg U.S. Aggregate Bond Index, as of 6/30/2026. 

⁴ U.S. Bureau of Economic Analysis (BEA), based on year-over-year Personal Consumption Expenditures (PCE) Price Index for May 2026, released 6/25/2026. PCE is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. 

⁵ Pew Research Center, American Trends Panel, as of 8/3/2025 and Fandango's 2026 Moviegoing Insights and Trends Study, released 4/8/2026. 

^5a Quality companies tend to have more stable earnings and lower levels of debt than the broader market. 

^5b Duration is a measure of a security’s price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security’s interest payments in addition to the amount of time until the security reaches maturity and also considers certain maturity-shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration can generally be expected to be more sensitive to interest rate changes than a fund with a shorter average duration. 

⁶ Dow Jones U.S. Total Stock Market Index, as of 6/30/2026. 

⁷ FactSet Earnings Insight, based on S&P 500 Index earnings, as of 7/2/2026. 

⁸ Russell 2000 Index and Russell 1000 Index, respectively, as of 6/30/2026. 

⁹ Russell MidCap Index and Russell 1000 Index, respectively, as of 6/30/2026. 

¹⁰ Russell 1000 Growth Index and Russell 1000 Value Index, as of 6/30/2026. 

¹¹ Based on a GICS sector breakdown of the S&P 500 Index, as of 6/30/2026. 

¹² Bloomberg Commodities Index, as of 6/30/2026. 

¹³ FTSE NAREIT All Equity REITS Index, as of 6/30/2026. 

¹⁴ MSCI All Country World ex US Index (Net MA Tax), as of 6/30/2026. 

¹⁵ MSCI EAFE Index (Net MA Tax), Dow Jones U.S. Total Stock Market Index, and MSCI Emerging Market Index (Net MA Tax), respectively, as of 6/30/2026. 

¹⁶ Based on a country breakdown of the MSCI EAFE Index, as of 6/30/2026. 

¹⁷ MSCI Canada Index (Net MA Tax), as of 6/30/2026. 

¹⁸ MSCI Emerging Market Index (Net MA Tax) and Dow Jones U.S. Total Stock Market Index, as of 6/30/2026. 

¹⁹ Based on a country breakdown of the MSCI Emerging Market Index, as of 6/30/2026. 

²⁰ Bloomberg U.S. Aggregate Bond Index, as of 6/30/2026. 

²¹ Corporate bond spread, also known as credit spread, is the difference in yield between a corporate bond and a government bond with the same maturity. Credit spreads tend to widen when investors grow more concerned about debt defaults and shrink when investors feel confident that defaults are less of a concern. When credit spreads are low or “tight” compared to historical averages, it implies that they are “rich” or “expensive.” In the context of corporate bonds, when investors anticipate a widening (or increase) of spreads, they generally move away from corporate bonds to avoid potential losses due to rising corporate bond yields. On the other hand, when there is an anticipated tightening of spreads, investors generally move to corporate bonds to potentially gain from any potential appreciation due to declining corporate bond yields. 

²² Based on a sector breakdown of the Bloomberg U.S. Aggregate Bond Index, as of 6/30/2026. 

²³ Bloomberg U.S. Treasury Index, as of 6/30/2026. 

²⁴ Bloomberg U.S. 1-5 Year Credit/Government Bond Index, Bloomberg U.S. Intermediate Aggregate Bond Index, and Bloomberg U.S. Aggregate Bond Index, respectively, as of 6/30/2026. Limited-duration bonds are those with an average range of approximately two to three and a half years. Intermediate bonds are those with an average duration range of approximately three and half to seven years. Duration is a measure of a security’s price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security’s interest payments in addition to the amount of time until the security reaches maturity and also considers certain maturity-shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration can generally be expected to be more sensitive to interest rate changes than a fund with a shorter average duration. 

²⁵ Bloomberg Municipal Bond Index and Bloomberg U.S. Aggregate Bond Index, respectively, as of 6/30/2026. 

²⁶ Bloomberg Municipal Managed Money Short Term Index, Bloomberg Managed Money Muni Short/Intermediate 1-10 Year Index, and Bloomberg Municipal Bond Index, respectively, as of 6/30/2026. 

²⁷ Based on a sector breakdown of the Bloomberg Municipal Bond Index, as of 6/30/2026. 

²⁸ ICE BofA U.S. High Yield Constrained Index and Bloomberg U.S. Aggregate Bond Index, respectively, as of 6/30/2026. 

²⁹ Bloomberg U.S. Treasury Inflation-Protected Securities (TIPS) Index, as of 6/30/2026. 

³⁰ Based on 4.7% yield-to-worst (YTW) for the Bloomberg U.S. Aggregate Bond Index, as of 6/30/2026. 

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. 

Past performance is no guarantee of future results. 

Diversification and asset allocation do not ensure a profit or guarantee against loss. 

Unless otherwise noted, this commentary does not necessarily represent the views of Fidelity Investments. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice. 

Data is unaudited. Information may not be representative of current or future holdings. 

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets. 

Investments in smaller companies may involve greater risk than those in larger, more well-known companies. 

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. Any fixed income security sold or redeemed prior to maturity may be subject to loss. High yield/non-investment grade bonds involve greater price volatility and risk of default than investment grade bonds. 

The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal funds. Although municipal funds seek to provide interest dividends exempt from federal income taxes and some of these funds may seek to generate income that is also exempt from the federal alternative minimum tax, outcomes cannot be guaranteed, and the funds may generate some income subject to these taxes. Income from these funds is usually subject to state and local income taxes. Generally, municipal securities are not appropriate for tax-advantaged accounts such as IRAs and 401(k)s. 

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. 

Index information: 

Please note that indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Indexes are not illustrative of any particular investment, and it is not possible to invest directly in an index. Securities indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. 

Bloomberg 1-5 Yr Gov/Credit Index tracks the subset of bonds in the flagship Bloomberg US Government/Credit Index with at least one year and up to, but not including, five years until final maturity. 

Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for commodity investments. BCOM provides broad-based exposure to commodities and no single commodity or sector dominates the Index. 

Bloomberg Managed Money Muni Short/Intermediate (1-10) Index is a flagship measure of the USD-denominated tax-exempt bond market over 1 year to maturity. The index includes four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. 

Bloomberg Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more. 

Bloomberg Municipal Managed Money Short Index measures the performance of the tax-exempt bond market and the investment grade fixed rate bond market, with index components for education, government public service, and transportation & utility with remaining time to maturity of 1-5 years. It is a rules-based, market-value-weighted index. This index is the MM Short (1-5) component of the Managed Money index. 

Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate pass-throughs), asset-backed securities and collateralized mortgage-backed securities (agency and non-agency). 

Bloomberg US Treasury Index is a market value–weighted index of public obligations of the US Treasury with maturities of one year or more. 

Bloomberg US 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. 

CBOE Volatility Index (VIX) measures the market's expectation of 30-day volatility for the S&P 500. 

Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data. 

FTSE NAREIT All REITs Index is a market capitalization–weighted index that is designed to measure the performance of all tax–qualified Real Estate Investment Trusts (REITs) that are listed on the New York Stock Exchange, the NYSE MKT LLC, or the NASDAQ National Market List. 

ICE Bofa US High Yield Constrained index is designed to track the performance of U.S. dollar-denominated high-yield corporate bonds that that meet specific criteria. These bonds must have at least $250 million in outstanding face value, an original maturity of at least 15 months and a maturity of at least one-year. The index includes bonds with ratings between BB1 and B3, based on an average of Moody’s, S&P and Fitch, and excludes those with lower ratings. 

MSCI ACWI (All Country World Index) ex USA Index (Net MA Tax) is a market capitalization-weighted index designed to measure investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR). 

MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR). 

MSCI Emerging Markets Index (Net MA Tax) is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR). 

MSCI Canada Index measures the performance of the large and mid-cap segments of the Canadian market. 

Russell 1000 Index is a market capitalization–weighted index designed to measure the performance of the large-cap segment of the US equity market. 

Russell 1000 Growth Index is a market capitalization-weighted index designed to measure the performance of the large-cap growth segment of the U.S. equity market. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth rates. 

Russell 1000 Value Index is a market capitalization-weighted index designed to measure the performance of the large-cap value segment of the U.S. equity market. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth rates. 

Russell 2000 Index is a market capitalization-weighted index designed to measure the performance of the small-cap segment of the U.S. equity market. It includes approximately 2,000 of the smallest securities in the Russell 3000 Index. 

Russell Midcap Index is a market capitalization-weighted index designed to measure the performance of the mid-cap segment of the U.S. equity market. It contains approximately 800 of the smallest securities in the Russell 1000 Index. 

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. 

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. 

Clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities. 

Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Personalized Portfolios accounts for a fee. Advisory services offered by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

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