- J.P. Morgan expects global equities to stay supported into year-end and 2026 as earnings hold up and central banks move from restrictive to steadier or easing policy.
- Europe is a key overweight call, with a sizable valuation discount to the U.S. and upside in banks plus fiscal-spending beneficiaries like defence, infrastructure, and utilities.
- Emerging markets are positioned to outperform on a softer U.S. dollar, easier local policy, selective reforms, and attractive relative valuations.
- Key risks are sticky inflation, geopolitical/policy shocks, weak growth follow-through, and stretched valuations concentrated in U.S. mega-cap tech.
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J.P. Morgan’s “Trading Insights” episode (recorded December 1, 2025) underscores that equity markets have been broadly strong in 2025, with especially notable outperformance in non-U.S. markets—Europe, EM, several Asia-Pacific jurisdictions—driven by strong earnings, easing inflation pressures, and central bank policies that have moved from tightening to holding or towards easing wings of the cycle.
An important theme is regional divergence. Europe is viewed as a region with both valuation upside and macro tailwinds. European equities (excluding UK) trade at forward P/Es significantly below U.S. levels, offering a gap that may compress if recent and projected earnings improvements materialize. Key sectors for upside include banks (benefiting from steeper yield curves and credit impulse), fiscal beneficiaries (defence, infrastructure, utilities), and large laggards across tech, staples, luxury, and healthcare—what JPM calls the “GRANOLAS”.
Emerging markets are presented as a structural opportunity. Drivers include a comparatively weaker U.S. dollar reducing external vulnerabilities; local interest rate declines and governance improvements; China showing signs of stimulus; and solid growth in Korea and Latin America. Valuations in EM remain favorable relative to DMs by forward multiples, and margin for upside is seen via both earnings expansion and multiple rerating.
U.S. equities—even though showing strength—face more constraining dynamics. Elevated valuations, heavy concentration among large tech/momentum names, and less scope for multiple expansion suggest future returns may lean more on earnings rather than upside surprises from macro tailwinds. Moreover, central bank vigilance against inflation and risk of geopolitical or policy shocks continue to loom as downside risks.
Strategic implications for portfolio positioning include: increasing exposure to Europe and EM (with selectivity across sectors), favouring quality and cyclical upside, rotating out of over-valued U.S. big tech, and hedging exposures sensitive to currency, rates, and policy disruptions. Investors should also monitor central bank guidance, inflation data, shipping/renewables/infrastructure spending, and trade/travel announcements for catalyst signals.
Open questions remain: will inflation truly fall enough to permit tighter policy easing without derailing growth? Can China’s stimulus translate into durable demand rather than episodic support? Will European fiscal stimulus, especially in Germany, achieve delivery and offset policy/regulatory headwinds? How much of U.S. tech valuation premium is justified versus priced for perfection?
Supporting Notes
- J.P. Morgan forecasts for 2026 include double-digit gains in developed and emerging markets equities, with Europe’s earnings growth exceeding 13%, aided by steeper credit impulses and fiscal stimulus.
- European banks trade at price-to-book ratios near 1.1x ex-UK, with shareholder yield (dividends + buybacks) around 8%.
- MSCI Europe ex-UK forward P/E is approximately 35% lower than comparable U.S. multiples, despite narrowing earnings growth gaps between the regions over 2025-2027.
- J.P. Morgan estimates U.S. earnings growth of 13-15% over next two years, especially supported by an AI investment cycle.
- Emerging markets equities have already outperformed U.S. equities, partly driven by U.S. dollar depreciation versus many EM currencies; now trading at valuation discounts compared to developed market peers.
- Risks noted include sticky inflation, high valuations (especially in U.S. large caps), uncertain delivery of European fiscal stimulus, and geopolitical/policy uncertainty.