Market Trends & Opportunities - Macroeconomic environment is constructive for risk assets heading into 2026, identifying opportunities across small caps, international markets, and fixed income [1] - Small caps, as indicated by the Russell 2000, are up nearly 10% this year, while the S&P 500 is up approximately 135% [2] - International developed markets are up 25% this year [10] - Broadening of equity markets is expected, with opportunities across sectors within the S&P 500, particularly in AI and healthcare [7][8] Federal Reserve & Interest Rates - Anticipation of Federal Reserve rate cuts has positively impacted small caps [2][3] - Small cap performance is correlated with the perceived probability of Fed rate cuts [3][4] - Expectation of Fed rate cuts makes it sensible to build income in portfolios beyond government bonds [13] Small Cap Innovation & AI - Small caps are seen as AI innovators with opportunities in niche markets, not directly competing with hyperscalers [4][5][6] - There are opportunities for small caps to compete in niche AI markets [5] International Markets - Fiscal expansion in Germany and a new administration in Japan supportive of fiscal expansion are expected to drive growth in international markets [9] - International markets are expected to continue outperforming the US, though not necessarily at the expense of the US market [10][11] Investment Strategies - Downside protection is important in portfolios due to market uncertainty and complexity [12][13] - Strategies for generating higher yields include international stocks with higher dividend yields, securitized high yield, and option-based income strategies within the S&P 500 [13][14] - Exposure to mega-cap tech AI hyperscaler trade should be market cap neutral [15]

Recent volatility in the Treasury market doesn't mean bonds can't offer benefits to investors. On this episode of Market Sense, a Fidelity portfolio manager who specializes in fixed income explains why the current climate of higher yields and the potential for lower interest rates could deliver attractive returns. Plus, we dig into all the latest market headlines and trade news. Topics covered: • Bond opportunities • Bond ETFs • Active and passive bond funds 01:18: Middle East Conflict 02:50: Federal Reserv ...