Market Uncertainty Will Continue in 2026. Here’s How Investors Can Cope

Nobody can predict what 2026 will bring, but investors must be prepared for a wide range of outcomes.

Trade tensions and tariffs remain a key topic. US tariff rates could rise further, affecting sectors such as pharmaceuticals and semiconductors, and new levies on China could cause further disruption. Equally important, our research suggests that the US economy has yet to fully absorb the tariff hikes already implemented.

Alongside trade, the Federal Reserve will continue to influence markets.

The Fed restarted its rate-cut cycle in September after a nine-month pause, prompted by warning signs in the US labor market. Fed cutting comes as other major central banks are expected to cut very little or not at all. While some investors worry about the erosion of Fed independence, the Fed’s commitment to inflation stability is deeply ingrained and is expected to endure any temporary political pressures.

Federal Reserve, European Central Bank, and Bank of England Market-Implied Paths of Policy Rates

Turning Information Into Knowledge

The year 2026 will test investor discipline in ways both familiar and new.

While it’s tempting to focus solely on investment factors when preparing for volatility, it’s just as important to consider behavioral aspects of how investors make decisions and process information during turbulent periods.

Volatility-related events often prime us to fall into behavioral traps that can lead to costly investor mistakes.

The graph below illustrates how investors reacting to tariff announcements earlier this year by pulling investments from the market would have missed out on strong gains later in the year.

Ways Advisors Can Help During Market Volatility

During these periods, advisors play a key role in helping clients avoid behavioral mistakes, in part by guiding their attention to what truly matters.

Research from Morningstar’s behavioral insights team found that, amid tariff uncertainty, the most common support clients wanted from advisors was market education—something many advisors provided. That education helped, as advisors said clients were more comfortable enduring volatility when given historical context and long-term data.

Market education goes beyond just providing more information about current volatility. It instills the knowledge investors need to make sense of events and offers an opportunity for advisors to shift the focus from short-term headlines toward long-term investment principles, emphasizing full market cycles and the value of staying invested over time.

How Investors Can Navigate Uncertainty With a Time-Tested Playbook

Investing requires grappling with structural uncertainty—dealing with outcomes that are unknowable ahead of time. We believe investors are best served by sticking to time-tested investment principles when navigating these episodes.

Morningstar’s investment team follows this approach:

• Avoid overreacting to headlines: Don’t sell assets during market downturns. Periods of heightened uncertainty often lead to sharp recovery rallies; missing these can significantly affect long-term investment outcomes. For example, missing the best 10 market days over the past 25 years would have more than halved the holding period return.
• Rebalance and stay committed to your strategy: During headline-driven shocks, we rebalance portfolios back to target allocations. Rebalancing—selling winners and buying losers—is countercyclical and historically adds value during volatile periods.
• Seek opportunities where markets have overcorrected relative to fundamentals: Elevated uncertainty can lead investors to discount certain assets more than fundamentals justify. Our teams rigorously analyze the impact on corporate and economic fundamentals, taking time to build conviction before acting. The April 2025 tariff shock, for example, created compelling buying opportunities.

Uncertainty Is Always Part of Investing

Uncertainty is nothing new. Humans are naturally wired to act at the wrong time.

The best approach is to recognize biases, prepare for a wide range of economic outcomes in 2026, and ground investment decisions in a disciplined, time-tested framework.