JP Morgan’s equity strategists think investors may need to brace for another bout of musical chairs next year, as the winners-and-laggards rotation that has characterised much of this year rolls on into 2026.
Their latest outlook sets out a fairly benign backdrop for risk assets once the current market wobbles are out of the way.
The bank expects the growth-inflation mix to look more comfortable, helped by softer wage growth, easing services inflation and a relatively tame oil market. If those ingredients fall into place, bond yields and central bank policy could stay on the dovish side, removing one of the bigger headaches for equity investors.
JPM is upbeat on three fronts: the United States, China and the eurozone. In the US, spending on artificial intelligence infrastructure still shows little sign of slowing.
The view from the US investment bank is that the investment cycle will push on “almost irrespective of stock prices”, which is another way of saying that companies are racing each other to build capacity.
China, which has spent years dragging its feet, could start to show some “green shoots” in private-sector activity.
That is hardly a forecast of roaring growth, but even a modest turnaround would matter for European stocks that sell heavily into the country. Meanwhile, the eurozone (long a sticking point for the bulls) could finally pick up some momentum as credit conditions improve and fiscal stimulus finds its way into the system.
European equities have been treading water since an early-year rally fizzled out. Earnings simply failed to keep pace with share prices. JP Morgan says it was right to take a cautious stance on the region this year, but now expects eurozone profits to show a more convincing improvement in 2026.
The factors it points to are fairly workmanlike: better operating leverage as revenues revive, less of a drag from currency swings, the easing of tariff headwinds, easier comparisons with this year’s weak numbers and an improvement in financing conditions.
That feeds into the bank’s core call for next year: look again at the underdogs. Some of this year’s best-performing sectors — notably defence and utilities — may find 2026 tougher going. Defence groups still have a solid fundamental backdrop, but JP Morgan doubts they can keep up the same pace of share price gains. Utilities, which have been strong this year, may also face a more challenging spell if bond yields behave and growth perks up elsewhere.
By contrast, miners, luxury goods groups, semiconductor makers and even the beaten-up European carmakers could see better days.
All of these are sensitive to any improvement in Chinese demand, and the bank thinks exporters in general should enjoy a better run. Autos are upgraded from underweight to neutral; hardly a ringing endorsement, but a sign that the worst may be over.
The firm is also sticking with its positive stance on emerging markets, including China, arguing that 2026 could be another constructive year after a long period in the wilderness.
The broad message is simple enough: investors may want to start lightening up on some of the year-to-date winners and pick through the laggards.