- JPMorgan Asset Management ($4.3 trillion AUM) is bullish on risk assets for H2 2026, arguing that AI infrastructure spending and the wealth effect from rising stocks and home prices will sustain economic momentum despite inflation at 4.2% — a three-year high.
- Chief global strategist David Kelly expects the Fed to hold rates for at least two years with possible cuts in 2027; bonds are attractive at current elevated yields; EM markets tied to Asia’s chip supply chain (South Korea, Taiwan) seen as top performers.
- JPMAM’s baseline political forecast: Democrats regain the House in 2026, limiting fiscal stimulus in 2027 and making the AI-driven private capex cycle the primary growth engine.
- Kelly flagged AI as the most likely epicenter of the next bear market: “The bear market’s very likely to be centered in whatever area of the economy, of the markets, have the biggest hype and euphoria beforehand. And that’s everything to do with AI.”
What Happened?
JPMorgan Asset Management released its 2026 midyear investment outlook, with chief global strategist David Kelly urging investors to stay long risk assets through H2. The core thesis: AI infrastructure spending by hyperscalers is sustaining a durable capex cycle that drives corporate earnings, while higher-income consumers continue spending on the wealth effect from elevated stock and home prices. JPMAM expects inflation — which hit 4.2% in May — to ease gradually through H2 and 2027, aided by a lasting Hormuz resolution and moderating shelter and wage inflation. The Fed is expected to hold rates for two years, with cuts possible in 2027. JPMAM also recommends bonds at current yields, defensive alternatives including real estate, infrastructure, and transportation, and international diversification in Europe and Japan.
Why It Matters?
JPMAM’s call is a direct pushback against growing concern that this year’s equity gains have left stocks vulnerable to a pullback. Kelly’s framing — “It’s an OK economy for Americans; it’s a great economy for the stock market” — captures an unusual divergence: profit growth has been “spectacular” even as inflation weighs on real incomes, sustained by AI capex flowing into corporate earnings. His political forecast (Democrat House majority) limits the fiscal stimulus upside and makes the private AI investment cycle more load-bearing. But Kelly is candid about the concentration risk: four years into a bull market, AI-adjacent assets are the most obvious flashpoint for any correction, and he acknowledges the setup rhymes with prior hype cycles.
What’s Next?
The Fed’s posture under Chairman Kevin Warsh is the most immediate test. A more hawkish-than-expected stance would narrow the rate-cut optionality underpinning the bull case. Hyperscaler AI capex commitments in Q3 earnings will either validate or challenge the thesis that AI spending is durable enough to sustain the expansion. South Korea and Taiwan — flagged as top EM performers given roughly double the US hard-tech exposure — are specific watches. JPMAM’s midyear call will be tested quickly across all of these fronts.
Source: Bloomberg
