Below is a summary of the key takeaways from Innovator’s 2026 Market Outlook. The full report can be accessed here: https://www.innovatoretfs.com/pdf/2026_market_outlook.pdf
The “Innovator 2026 Market Outlook” provides a strategic overview of the current bull market, its transition into its fourth year, the impact of AI infrastructure spending, and expectations for the macroeconomic environment in 2026.
1. The State of the Bull Market
- Duration & Drivers: Since beginning in late 2022, U.S. equities have climbed nearly 100%. This growth has been primarily valuation-driven (“multiple expansion”) rather than supported by earnings growth. Valuations currently sit near the 93rd percentile relative to history.
- The Fourth Year Transition: Historically, years three and four are vulnerable periods for bull markets, often marked by corrections or consolidation. To sustain the cycle beyond 2026, the market must successfully transition from valuation-driven gains to earnings-driven growth.
2. The AI Investment “Flywheel”
- Infrastructure Surge: Tech leaders—Amazon, Alphabet, Microsoft, and Meta—are projected to spend over $300 billion on AI infrastructure capex during 2025 alone. This surge reflects a historic commitment to AI leadership.
- Steep Adoption Curve: Generative AI adoption is outpacing historical benchmarks. Three years after commercial launch, adoption sits at 54.6%, compared to 19.7% for PCs and 30.1% for the internet at similar points in their life cycles.
- Risk Management Signal: History shows equity prices typically peak before investment levels roll over. Monitoring shifts in AI capex trajectories will be critical for identifying risk-reduction signals in 2026.
3. Macroeconomic Projections for 2026
- Market Volatility: Increased volatility is expected, driven by anxiety over AI spending, stretched valuations, and labor market softening.
- Growth Tailwinds: Earnings support remains possible through AI-driven productivity gains, cost savings, falling energy prices, and global central banks shifting toward monetary easing.
- Labor Market and Consumption: AI-driven automation is estimated to account for 15-20% of mass layoff announcements. While this benefits short-term margins, deteriorating labor conditions may eventually challenge consumer spending power.
4. Monetary Policy and Rates
- Federal Reserve Transition: Fed Chair Jerome Powell’s term ends in May 2026. The report anticipates a potential return of “Fed independence risk” and expects two rate cuts in 2026, bringing the Fed Funds target to 3.00%–3.25%.
- Yield Range: The 10-year Treasury yield is expected to drift lower, trading within a projected range of 3.50% to 4.25% as growth becomes more concentrated in AI-related capex.
5. Strategic Solutions
The report highlights several “Defined Outcome” and “Managed Floor” ETFs® designed to help investors navigate potential volatility and protect gains in 2026:
- Managed Floor (SFLR / QFLR): Strategies providing a built-in 10% laddered floor while maintaining uncapped upside potential (targeting 70-80% participation).
- Frontier Tech (LOUP): Active management targeting leaders in the AI and new technology frontier.
- Buffer & Protection (PJAN / ZJAN / BFRZ): Protection strategies offering varied levels of downside defense, from 15% buffers to 100% downside protection.
- Income & Defensive Equity (ACEI / BALT): Solutions for monthly income via autocallables or quarterly 20% buffers to reduce reliance on interest rates for risk management.
Visit Innovator ETFs®: https://www.innovatoretfs.com/
Disclosures & Disclaimers
The Funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in a Fund is right for you, please see “Investor Suitability” in the prospectus.
The Funds face numerous market trading risks, including active markets risk, authorized participation concentration risk, buffered loss risk, cap change risk, capped upside return risk, correlation risk, liquidity risk, management risk, market maker risk, market risk, nondiversification risk, operation risk, options risk, trading issues risk, upside participation risk and valuation risk. For a detailed list of Fund risks see the prospectus. Buffer ETFs™ Risk. Fund shareholders are subject to an upside return cap (the “Cap”) that represents the maximum percentage return an investor can achieve from an investment in the Funds for the Outcome Period, before fees and expenses. If the Outcome Period has begun and the Fund has increased in value to a level near to the Cap, an investor purchasing at that price has little or no ability to achieve gains but remains vulnerable to downside risks. Additionally, the Cap may rise or fall from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be considered before investing in the Fund. The Funds’ website, www. innovatoretfs.com, provides important Fund information as well information relating to the potential outcomes of an investment in a Fund on a daily basis.
The Funds only seek to provide shareholders that hold shares for the entire Outcome Period with their respective buffer level against reference asset losses during the Outcome Period. You will bear all reference asset losses exceeding the buffer. Depending upon market conditions at the time of purchase, a shareholder that purchases shares after the Outcome Period has begun may also lose their entire investment. For instance, if the Outcome Period has begun and the Fund has decreased in value beyond the pre-determined buffer, an investor purchasing shares at that price may not benefit from the buffer. Similarly, if the Outcome Period has begun and the Fund has increased in value, an investor purchasing shares at that price may not benefit from the buffer until the Fund’s value has decreased to its value at the commencement of the Outcome Period.
These Funds are designed to provide point-to-point exposure to the price return of the Reference Asset via a basket of Flex Options. As a result, the Funds are not expected to move directly in line with the Reference Asset during the interim period. Investors purchasing shares after an outcome period has begun may experience very different results than fund’s investment objective. The Fund will not terminate after the conclusion of the Outcome Period. After the conclusion of the Outcome Period, another will begin. The Outcomes that the Funds seek to provide may only be realized if you are holding shares on the first day of the Outcome Period and continue to hold them on the last day of the Outcome Period. There is no guarantee that the Outcomes for an Outcome Period will be realized or that the Funds will achieve their investment objective.
SFLR, BFRZ & QFLR Risk. The Funds seek to provide risk-managed investment exposure to the equity securities represented by the Solactive GBS U.S. 500 Index (SFLR & BFRZ) and the Nasdaq-100 Index (the “Indices”), respectively, through their hedging strategy. There is no guarantee that the Funds will be successful in implementing their strategy to provide a hedge against overall market exposure. The Funds seek to achieve their investment objective by purchasing a series of four, one-year Flex Options packages with “laddered” expiration dates that are 3 months apart. The Funds will also systemically sell short dated call option contracts, which have an expiration date of approximately two weeks, with an objective of generating incremental returns above and beyond the premium outlay of the protective put option contracts. The Funds do not provide principal protection or non-principal protection, and an investor may experience significant losses on their investment. In a market environment where the Indices are generally appreciating, the Funds may underperform the Indices and/or similarly situated funds.
BFRZ Risk Continued. The Fund seeks to provide a series of “buffers” that each aim to protect the Fund against 100% of losses experienced by the Equity Index, as measured at the end of one-year periods and before fees and expenses. The implementation of the buffers is not guaranteed. As a result of the Fund’s laddered investment approach, on an ongoing basis the Fund will experience investment buffers that are expected to be greater or less than the 100% buffer sought-after by an individual Options Portfolio.
FLEX Options Risk. The Funds will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Funds could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of reference asset.
LOUP Risk. The Fund seeks to provide capital appreciation by investing at least 80% of its net assets in equity securities of companies on the frontier of the development of new technologies. Along with general market risks, an ETF that concentrates its investments in a particular industry or sector may be more volatile. Small- and mid-cap companies can have limited liquidity and greater volatility than large-cap companies. ETFs are bought and sold at market price and not individually redeemed from the fund. Brokerage commissions will reduce returns.
ACEI Risk. The Fund is an actively managed ETF that seeks to provide income distributions and potential downside limitation. The Fund principally invests in a laddered portfolio of over-the-counter (OTC) swap agreements. The investment results depend on the performance of the reference asset(s), with payouts in the form of coupon payments rather than capital appreciation. Fund shareholders can lose money. There can be no assurance that the Fund’s investment objectives will be achieved.
Specific companies have been mentioned for educational purposes only and should not be deemed as a recommendation to buy or sell any securities. This material is provided for informational purposes only and is made available on an “as is” basis. Innovator is not providing this information as investment advice. The information herein represents an evaluation of market conditions as of the date of publishing and is subject to change without notice. Certain information herein contains forward-looking statements. Actual events or results may differ materially. The Funds’ investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus and summary prospectus contain this and other important information, and it may be obtained at innovatoretfs.com. Read it carefully before investing. Investing involves risks. Loss of principal is possible. Innovator ETFs® are distributed by Foreside Fund Services, LLC. Copyright © 2025 Innovator Capital Management, LLC. All rights reserved.
