As 2025 hits its halfway mark, J.P. Morgan Asset Management isn’t sugarcoating the message: the world feels messy, unpredictable, and politically loud. But underneath that noise, they argue, are surprisingly solid economic foundations—if investors are willing to stay focused and diversified.
Their latest Mid-Year Investment Outlook1 cuts through the chaos and lands on one big idea: “Investors must focus on stable strategies to thrive in these unstable times.” Here's what that means in plain English.
Fear Isn’t Just a Feeling—It’s a Risk
J.P. Morgan opens with a nod to FDR’s famous warning: “The only thing we have to fear is fear itself.” And it holds up. The report argues that today's market volatility isn’t rooted in real economic damage—it's largely fear of what could happen next.
“The global economy is structurally sound... The risk is that uncertainty about US policy causes firms and households to pause their spending plans.”
In other words, companies and consumers aren't struggling—they're hesitating. And that hesitation could be just as damaging as an actual downturn. The uncertainty around tariffs and the massive $5.3 trillion “One Big Beautiful Bill” is already making markets nervous.
“The bond market is understandably dubious about the path the US authorities are on.”
Trade, Tariffs & the Fed: Markets Are Watching Closely
The US is back in the tariff game, and not lightly. Although some headline numbers have come down, tariff levels are still the highest they've been since WWII. And the legal fight over their legitimacy? Far from over.
“We suspect the administration will find ways to keep pursuing their trade policy goals.”
All of this has put the Federal Reserve in a tricky spot. Don’t expect any rate cuts unless the economy really takes a turn.
“Our central expectation is that the Fed remains on hold through the remainder of 2025.”
Global Growth Stories: Europe Steps Up, China Treads Cautiously
Europe, often slow to act, is finding its rhythm again. Germany is finally deploying its fiscal muscle, and that could fuel a decent rebound—if it isn’t derailed by renewed US trade tension.
“Germany is now using the considerable fiscal space it has guarded in recent years.”
The UK also has pent-up savings and slightly better trade ties, but budget politics and inflation are keeping things tight.
In China, exports are dodging US tariffs by moving through third-party countries. At home, though, demand is still soft—and Beijing isn’t rushing to stimulate.
“We are yet to see Beijing’s actions translate into a meaningful rise in consumer confidence or consumer spending.”
Still, China’s innovation engine is alive and well. The January launch of DeepSeek, a shockingly efficient AI model, shows the country might be entering a new tech frontier.
“If the government promotes entrepreneurship… then China could be at the leading edge of tech innovation.”
Equity Markets: Beware the Comfort of Old Assumptions
Despite the rollercoaster start to the year, J.P. Morgan isn’t waving red flags on equities—just yellow ones. Corporate balance sheets are strong, but investors may be placing too much hope in tech megacaps and rosy earnings forecasts.
“Earnings growth is likely to stall rather than slump... but consensus earnings expectations are still more optimistic than the macro outlook implies.”
They believe it’s time to move beyond the US-heavy playbook and embrace regional diversification, especially with Europe trading at a discount.
“Investors will see better risk-adjusted returns from being well regionally diversified.”
Dividend-paying stocks are also worth a look. When earnings drop, dividends usually don’t fall as hard—offering a buffer.
“Dividend growth typically pulls back by roughly half that of earnings.”
Bonds: Insurance for the Rough Patches
Yes, bond yields are bouncing around, but J.P. Morgan still sees a place for fixed income—especially if things get worse.
“We still think core bonds deserve their place in providing income and downside protection.”
When 10-year Treasuries inch toward 5%, they say it’s a smart time to “lean into duration”—aka buy longer-term bonds. But don’t forget: inflation risk hasn’t vanished, and bonds may not hedge equities like they used to.
“The term premium… should be much higher than it was over the last decade.”
Their advice? Stick with high-quality credit and be cautious around Japanese bonds, where rate hikes could surprise markets.
Real Assets & Alternatives: Inflation-Proofing the Portfolio
J.P. Morgan doesn’t want investors to forget the 2022 inflation gut punch. Both stocks and bonds dropped together. What held up? Real assets.
“Many of the best places to hide during 2022's inflation shock were in core real assets, such as infrastructure, transportation, and timberland.”
Core real assets—backed by long-term contracts or regulation—offer inflation-linked income and stability. Gold gets a nod too, especially as a geopolitical hedge (though it’s pricey now).
And liquid alternatives, like macro hedge funds? They’re not just “nice to have.” In this environment, they could be essential shock absorbers.
“They can provide an additional layer of diversification… and act as ballast during periods of market stress.”
Currency Exposure: Time to Rethink the Dollar
The US dollar’s long reign as a reliable diversifier may be coming to an end. With trade wars flaring and fiscal discipline fading, the greenback’s status is on shaky ground.
“If US policies turn out to be inflationary and destabilising, the dollar is likely to lose its positive diversification effects.”
This matters—especially for European investors. By May, the S&P 500 was up 1% in USD, but down 6–8% once FX effects were factored in.
“Being mindful of the right balance of currency risk in the portfolio is crucial for future investment success.”
Currency-hedged strategies are back in style—and may be essential if the dollar heads lower in a messy way.
Four Futures: Mapping the Possible
J.P. Morgan lays out four scenarios:
- Slower Growth (Base Case) US slows under policy uncertainty. Europe outperforms. USD weakens gently.
- Inflation Returns (Downside) Tariffs + stimulus = hot inflation. Stocks and bonds both suffer.
- Deep Recession (Downside) Companies start firing, not just freezing. Bonds shine.
- Goldilocks Boom (Upside) AI productivity surge + stimulus = solid growth with tame inflation. EM outperforms.
Final Advice for Advisors
- Diversify Globally: U.S. dominance may not last.
- Hold Core Bonds: Recession protection still matters.
- Add Alternatives: Real assets and hedge funds add resilience.
- Watch Your FX: Don’t let the dollar surprise you.
- Prepare for Both Outcomes: Inflation or slowdown—your portfolio should handle either.
In short, this isn’t the time for bravado or shortcuts. It’s a time to get smart, get diversified, and stay focused on long-term resilience.
Footnote:
1 J.P. Morgan Asset Management. Mid-Year Investment Outlook 2025: Stable Foundations for an Unstable World. July 2025.
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