JPMorgan Chase & Co.’s asset-management arm is urging investors to stick with stocks and other higher-risk assets in the second half of 2026, arguing that an AI investment boom and resilient consumers should keep the expansion intact despite persistent inflation and a Federal Reserve on hold.
The call challenges growing concerns that this year’s powerful gains have left equities vulnerable to a pullback. Instead, the $4.3 trillion asset manager says economic momentum is strengthening as companies ramp up spending on AI infrastructure, while higher-income consumers continue to spend, helped by the so-called wealth effect, buoyed by rising stock and home prices.
JPMorgan Asset Management, in its 2026 midyear outlook, also said bonds have become attractive again because yields remain elevated, while emerging markets are increasingly linked to Asia’s chip supply chain. For diversification, the firm recommends defensive alternatives including real estate, infrastructure and transportation, while also pointing investors to Europe and Japan.
“The good news in terms of baseline forecast is we think the economy will strengthen in the middle of the year,” said David Kelly, chief global strategist at JPMAM. He said that strength should be helped in part by income tax refunds, as well as AI spending.
Kelly said continued growth into the fourth quarter hinges on additional fiscal stimulus from Washington, though the team’s baseline forecast is that Democrats regain control of the House, limiting the prospects for stimulus in 2027.
“It’s an OK economy for Americans; it’s a great economy for the stock market,” he said. “The only thing that really matters for equities are profits and interest rates. And profit growth has been spectacular.”
The stronger economic backdrop comes even as inflation remains elevated. Consumer prices rose 4.2% in May from a year earlier, the fastest pace in three years. Still, Kelly expects inflation pressures to ease gradually through the rest of 2026 and into next year, assuming a lasting resolution to tensions around the Strait of Hormuz. Lower energy costs, moderating shelter inflation and contained wage growth are expected to help cool price gains.
“We’re not forecasting recession,” he said. “The wealth effect and the AI boom keep us going.”
On rates, the JPMorgan team said it believes the Fed will not raise interest rates at any point over the next two years. Kelly also brought up the possibility that the central bank could cut interest rates next year.
Kelly said the 2026 investment landscape is defined by a tension between rising political and economic risks and continued support from AI-driven spending.
“That really encapsulates where we find ourselves in the economy and financial markets in the middle of 2026,” Kelly said. “There are plenty of cross currents,” he added, citing sky-high market valuations, economic nationalism, political polarization, Middle East conflict, as well as immigration issues and tariff risks.
Yet, “at the same time, in the midst of all this, we’ve got this tremendous AI boon in terms of the potential for the technology, but more concretely, the extraordinary amount of capital spending being done by hyperscalers.”
International stocks are also seeing earnings growth driven more by long-term trends than by the business cycle, Kelly said, while cautioning against too much exposure to Asian technology shares.
Markets such as South Korea and Taiwan, he said, increasingly have roughly double the exposure to “hard tech” compared with the US. He expects both to be among the best performers.
“We are in the fourth year of a very strong bull market for equities in terms of the gains that we’ve seen. And there is a lot of concentration risk,” he said. “The bear market’s very likely to be centered in whatever area of the economy, of the markets, have the biggest hype and the euphoria and excitement beforehand. And that’s everything to do with AI.”
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