Investing Insights: Market Volatility and Opportunities in 2026

Ivanna Hampton: Welcome to Investing Insights! I’m your host, Ivanna Hampton. Market volatility can often shake an investor’s resolve. With the geopolitical and economic fluctuations of 2026, what lessons can we draw from these events? Joining us today is Dominic Pappalardo, Chief Multi-Asset Strategist for Morningstar Wealth.

Dominic Pappalardo: Thanks for having me.

Hampton: How would you describe the first half of 2026 in terms of the stock market?

Pappalardo: It was a particularly interesting period filled with geopolitical tensions and fluctuating market dynamics. A supply-side shock led to rising oil prices, contributing to heightened inflation.

Hampton: Let’s discuss three notable events up to June 30. First, the significant software selloff earlier this year. What made it impactful, and what is the current state of the tech sector?

Pappalardo: The tech sector experienced a shift in sentiment, particularly affecting software names. Many investors began to realize that AI might not benefit every tech company, leading to fears over pricing power and license sales among software providers.

Hampton: During early March, the conflict in the Middle East triggered global market volatility. How did various stock sectors respond?

Pappalardo: March saw a traditional “risk-off” reaction, with investors seeking security. Oil prices rose sharply due to disrupted shipments, while higher-beta segments like emerging markets suffered more than the US market, which held up relatively better. Energy companies were the exception, benefiting from increased oil prices.

Hampton: The spring saw a market rally thanks in part to ceasefire talks between the US and Iran. What other factors contributed to this optimism?

Pappalardo: The rally was fueled by a mix of optimism from ceasefire talks and renewed interest in AI investments, which had driven market performance in prior years. Key subsectors, like memory and semiconductor companies, performed especially well.

Hampton: Historically, market volatility leads to panic selling. What can investors learn from such periods?

Pappalardo: Investors attempting to time their entries and exits can miss opportunities. Maintaining a disciplined investment plan helps navigate volatility, as most headlines don’t alter the long-term fundamentals of companies.

Hampton: How should long-term investors cope with market drawdowns?

Pappalardo: It’s tough to see investment values decrease swiftly. A solid investment plan is crucial, allowing investors to trust the long-term outcome. Developing discipline to avoid constant monitoring can help mitigate anxiety during downturns.

Hampton: What should investors do in response to market volatility?

Pappalardo: Instead of panicking, evaluate if any significant long-term changes are warranted. If your investment thesis remains intact, sticking to your plan is usually the best course.

Hampton: As we look towards the second half of 2026, what does your midyear outlook forecast?

Pappalardo: The outlook is mixed. We anticipate uneven responses across market sectors. Our strategy is to focus on specific exposures rather than making broad market bets. For instance, we see potential in undervalued software companies and are still positive on healthcare.

Hampton: What’s the update on fixed income opportunities?

Pappalardo: Our strategy remains largely unchanged. We favor government bonds over corporate credit due to a narrow yield premium in corporate bonds. We’ve also diversified our bond exposure globally to capture higher yields in foreign government bonds.

Hampton: Which equity sectors are worth investigating, according to Morningstar analysts?

Pappalardo: Our top equity pick is healthcare, followed by small-cap stocks, which have begun outperforming large-cap stocks. We’re also keeping an eye on emerging markets, especially those in Latin America that could benefit from rising oil prices.

Hampton: What key takeaways should investors consider as they prepare for the latter part of 2026?

Pappalardo: Key factors to watch include resolution of Middle Eastern conflicts, interest rate trends, and the future of AI investments. Corporate budgets for AI spending may soon plateau, potentially affecting market sentiment.

Hampton: Thank you for your insights, Dom!

Pappalardo: Thanks for having me.

Hampton: That wraps up this week’s episode. We appreciate your support, and don’t forget to subscribe to Investing Insights on your preferred podcast platform!