Global investment markets produced robust headline returns in 2025, though the journey was marked by considerable volatility. U.S. equities continued their strong performance, with the S&P 500 returning approximately 17.9%, the Nasdaq advancing by 21%, and the Dow Jones Industrial Average increasing by around 15%. These gains came despite a series of macroeconomic and policy shocks, most notably major tariff announcements in April. These events triggered a sharp market downturn, with the Nasdaq tumbling about 21% and the S&P 500 falling roughly 18%. International equities outshined their U.S. counterparts, as both developed and emerging markets delivered returns exceeding 30% in U.S. dollar terms. 1
Fixed income markets saw a significant rebound after several tough years. The Bloomberg U.S. Aggregate Bond Index rose 7.3%, its best showing since 2020. This recovery was driven by easing inflationary pressures and a decline in long-term Treasury yields, which dropped from 4.57% at the start of the year to 4.17% by the end. Commodities experienced notable volatility, especially as energy prices reacted to persistent geopolitical tensions and evolving supply chain dynamics. Gold and other precious metals drew increased investor interest as safe-haven assets in times of uncertainty, resulting in strong, positive returns.1
The U.S. economy shows signs of resilience, which has surprised many investors. However, it's important to acknowledge some persistent uncertainties. While consumer spending remains robust, thanks to real income gains and stable household finances, there are ongoing concerns about slower job growth and the impact of tariffs. This strong spending continues to support GDP and helps balance weaknesses in other economic sectors.
On the investment front, both consumers and businesses are still committing resources, especially in technology and infrastructure, aiding prospects for long-term growth. Although hiring has moderated, layoffs remain low and labor demand is still above pre-pandemic levels, suggesting a cooling rather than a contraction. Furthermore, the rollout of the One Big Beautiful Bill (OBBBA) could positively affect the U.S. economy in early 2026. Increased federal spending on infrastructure, manufacturing, and energy may stimulate further investment, and additional state and local funding could help accelerate project timelines.
Investor sentiment in the Euro area is stronger than in 2025, boosted mainly by Germany’s planned fiscal expansion, easing global tariff tensions, and robust consumer spending. Germany's deficit is expected to reach 3.7%2 of GDP due to increased defense and social spending, with regional budgets also rising. EU-wide debt issuance will keep the fiscal stance neutral, marking a shift from previous tightening. As trade tensions fade and wages outpace inflation, consumer spending remains steady. A potential Ukraine ceasefire and lower energy costs may further support consumption and moderate growth.
Emerging markets begin 2026 with more stability, though regional differences persist. India, Southeast Asia, Mexico, and Central Europe remain resilient due to strong demand, better policies, and supply chain shifts. China is still a major uncertainty because of its slow property sector recovery. Commodity exporters face weaker trade terms, and countries with fiscal or external vulnerabilities are sensitive to global rates. Select regions with stable economies, credible policies, and ties to long-term investment trends offer the best opportunities.
Inflation is expected to remain a concern through 2026, mainly due to structural factors. Elevated U.S. tariffs will keep import costs high early in the year, but pressures should ease as supply chains and inventories adjust. Slower rent growth and stable energy prices will likely help moderate inflation, which is projected to be more manageable by late 2026. Globally, inflation should stay low in China, moderate in Europe, and stable elsewhere, supporting a cautiously optimistic outlook. However, persistent risks remain due to ongoing legal and political uncertainties regarding U.S. tariffs, reduced immigration contributing to labor market constraints, increased investment in artificial intelligence placing demands on power grids, and potential supply chain or geopolitical disruptions that may delay progress toward moderating inflation.
Source: Bloomberg, J.P. Morgan Asset Management.
Artificial intelligence is poised to transform global economies, as productivity gains are already emerging across multiple industries. Major cloud providers are expected to continue investing heavily, with total capital expenditure over the next three years exceeding $1.5 trillion.3 Historically, hyperscalers tapped balance sheet cash and free cash flow to fund these investments but are increasingly relying on debt, marking a major change in the economics of the AI build-out. Besides reshaping investment-grade debt markets, AI is supporting gold through heightened uncertainty around economic transitions and boosting utilities as data-center power demand accelerates and reshapes long-term energy infrastructure planning.
Worldwide impact of AI will be as transformative as electricity or the internet, fundamentally altering daily life. In the investment sector, this shift is expected to yield more losses than gains due to disrupted business models, market volatility from new regulations or technologies, and difficulty in finding profitable opportunities. Only those who adapt quickly may benefit, while most will face financial challenges during the transition. We see strong long-term investment opportunities in artificial intelligence and allocate client portfolios to benefit from this sector, while also focusing on diversification to avoid excessive concentration.
In managing client portfolios this year, diversification has been a central theme, and 2025 has clearly validated that approach. Following a period marked by exceptionally high concentration in select countries, sectors, and equities, global equity markets have experienced notable broadening, with most major regions delivering stronger performance than the United States. Europe, China, and Asia have delivered nearly twice the U.S. return in dollar terms. Emerging markets have also begun to break out as earnings strengthen and the backdrop of lower U.S. rates and a softer dollar improves. While U.S. equity gains have been driven largely by strong earnings—especially in technology—international markets have benefited from a healthier balance of earnings improvement and valuation rerating. This dispersion reinforces the importance of maintaining globally diversified equity exposure within client portfolios.
In mid-2025, we increased allocations to European and Japanese equities and reduced exposure to U.S. small-cap stocks. More high-quality small-cap companies now remain private longer due to private equity backing, leaving public small cap markets with lower-quality, less profitable firms. This shift has lowered long-term returns and made it harder for investors to achieve strong risk-adjusted performance in small-cap stocks.
Client portfolios have meaningful allocations to artificial intelligence, as we believe this exposure is essential for achieving robust long-term investment returns. However, we have maintained a balanced approach within the framework of diversification and have avoided excessive concentration in this area.
In client fixed income portfolios, we are focused on higher-quality securitized and corporate credits to provide stable income, diversifying sources with a particular emphasis on U.S. taxable securitized debt. The ongoing rally in agency residential mortgage-backed securities—driven by deregulation and bank demand—offers additional income opportunities. Within corporate bonds, we employ rigorous issuer selection so that strong fundamentals support yields in a compressed valuation environment.
Source: Bloomberg, FactSet, Federal Reserve, S&P Global.
Municipal bonds also remain central to our portfolios, delivering compelling yields and robust credit quality, especially for tax-aware investors. The steep municipal yield curve allows us to extend duration for greater income while maintaining safety and capitalizing on notable tax advantages. Private credit offers appealing yields and diversification advantages, particularly as banks move away from conventional lending. Nevertheless, investing in private credit requires skilled investment managers. Therefore, we pursue collaborations with seasoned professionals and apply rigorous underwriting standards to mitigate risk during the evolving credit cycle.
Looking ahead to 2026, commodity demand remains steady, driven by uncertainty in global policy. Select sectors like metals, especially copper and aluminum, benefit from rapid AI infrastructure growth. Energy markets are stable, and moderate oil prices help control inflation but restrict expansion for traditional producers. Gold stands out for its role as a safe haven, with prices elevated due to concerns over Federal Reserve independence, ongoing geopolitical tensions, and rising interest rates. Central banks are increasing their gold reserves, and retail investment is up as investors seek protection from currency devaluation and fiscal instability. Gold’s historical resilience during uncertain times, along with its liquidity and universal acceptance, make it a preferred hedge against risk—unlike other commodities affected by tariffs and supply chain changes. Overall, while the sector is resilient, growth depends on infrastructure demand and remains vulnerable to trade and political disruptions.
Investment markets face risks from geopolitical tensions, such as elections in the U.S. and Europe, disputes in the South China Sea, and possible trade conflicts between major economies. Restructuring supply chains and renewed tariffs or sanctions could affect multinationals and exports. Central bank policy changes, especially unexpected moves by the Federal Reserve or European Central Bank amid rising inflation, may cause volatility in interest rates, equities, and bonds.
In summary, navigating the investment landscape in 2026 requires a commitment to diversification, vigilance in monitoring evolving risks, and a willingness to adapt as new economic and geopolitical developments emerge. By maintaining a balanced approach across asset classes and geographies, investors can position their portfolios to withstand uncertainty while capitalizing on opportunities for growth. A disciplined, long-term perspective remains the cornerstone of effective portfolio management in an ever-changing global environment. We’re here to guide you through these changes and help keep your investments positioned for both resilience and success.
Footnotes:
1 – Return data provided by Morningstar Direct
2 – “Euro Area Outlook 2026: Cyclical Boost, Structural Drag, Unchanged Rates”, Sven Jari Stehn, European Economics Analyst, January 5, 2026
3 – “Guide to the Markets”, JPMorgan Asset Management, 1Q