2026 began with a supportive macro backdrop, marked by resilient growth and accommodative policy. Several concerns have eased – core inflation is moderating and tariff‑related risks have receded – though challenges remain. Labour‑market weakness, an inflation rebound, questions over Fed independence, and the durability of AI‑driven capex and earnings cycles still warrant attention. These risks seem manageable for now, but the longer‑term outlook is clouded by rising global fragmentation.

US trade policy has become its most restrictive in decades, alongside efforts to weaken the dollar. President Trump has sought to lower the US trade deficit, breaking the cycle of foreign capital recycling back into US dollar assets and shifting capital toward more productive assets like factories and infrastructure. The dollar is now a strategic policy tool, and we expect depreciation over the coming years, especially as debates around Fed independence intensify when Jerome Powell steps down.

These shifts will require investors to rethink their US‑dollar exposure. With geopolitical volatility likely to remain high in 2026, gold seems a useful hedge. The euro is becoming more attractive, supported by expected Fed cuts, fiscal easing, and higher German defence spending.

Income strategies can provide an added buffer for portfolios. Their more stable cash flows and dividend‑focused approaches help broaden allocations beyond the growth‑heavy tech exposure many investors rely on.

Over the long term, given the dominant weight of US equities in global indices, non‑US investors should reassess hedge ratios as dollar pressure builds. Structurally higher inflation also implies stronger equity‑bond correlations, reinforcing the need for alternative diversifiers such as real assets, currencies, and absolute‑return strategies.

Dollar depreciation should offer a tailwind for emerging markets, making EM assets one of our key convictions for 2026. Equity markets in countries such as South Korea and South Africa are already re‑rating on improving fundamentals and attractive valuations versus global peers. China also appears well‑positioned with ongoing policy support creating targeted opportunities.

To access our insights: Fidelity Macro Views

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Contact:

 - Fidelity International

 - Solène Garnavault

 - Solene.Garnavault@fil.com

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