Gold was top of mind and generally expected to outperform, though January’s sharp ally and heightened volatility in recent days have made implementation more challenging. Clients remained generally positive on U.S. equities with a lot of focus still on technology and AI-related investment themes, though there is a wide dispersion on clients’ opinions on the Chinese equities depending on the market they are in. Geopolitical risks remain a key concern with many expecting a worsening of global relations. Amid the promise and pressure in various parts of the global economy and markets, our clients remain generally positive on investments, with most indicating they are interested in increasing allocations into risk assets, especially out of cash.
Our 2026 Outlook is generally aligned with those views, but thoughtful implementation within the context of a diversified portfolio is key to achieving longer-term investment goals. We see continued upside in gold but are careful about implementation amid extreme volatility. There are opportunities in tech and AI though diversification into other equity sectors and markets could help strengthen portfolios. We embrace geopolitics as a core theme of our Outlook, and approach it through playing offense (owning the beneficiaries of global fragmentation and increased security spending) and defense (owning portfolio diversifiers beyond fixed income such as hedge funds and infrastructure).
After rallying over 60% last year and another 25% this year, gold declined over 13% over a matter of days, while silver lost around 30% in one of its worst selloffs in history. While it is challenging to pinpoint a single catalyst, U.S. President Trump’s nomination of former Fed governor Kevin Warsh could be a factor.
We view this move as a healthy technical correction following an irrational near-term rally, which washed out some speculative positioning. Prices have merely reverted to levels reached last month. Historical precedent, such as the October 2025 correction from 4,400 to 3,900, reinforce our expectation for a period of consolidation followed by recovery.
Importantly, our fundamental outlook for gold remains unchanged. Warsh is not against policy rate cuts. Despite higher chance of quantitative tightening (QT), the ongoing erosion of global fiscal discipline or the debasement narrative is unlikely to be reversed meaningfully. We expect central banks, institutions, and retail investors to continue seeking gold for reserve diversification, value storage, and risk hedging.
We revise our end-2026 gold outlook to $6,150/oz ($6,000- $6,300/oz), indicating a ~30% upside from current levels. This revision is underpinned by uncrowded positioning: 2025 data indicates emerging market (EM) central bank holdings of gold as a percentage of total reserves remained in the low teens, with China in the high single digits, highlighting further catch-up potential. ETF holdings are still below 2022–23 peaks. The broad presence of strategic, long-term buyers provides a robust floor for gold prices, reinforcing our conviction in gold over silver.
Two-way volatility has meaningfully increased given more retail participation. This environment favors the use of option strategies to capitalize on 15-year high volatility and a pronounced call skew, while incorporating downside hedges. Up until this point, many investors were caught off-guard by the sharp three-fold rally in gold over the past few years, and failed to participate in a meaningful way. Gold allocations remain light, sitting at less than 2% of assets on our platform, indicating room for long-term allocations to increase to our suggested 5%. We dive into more details in our gold paper.
After substantial returns over the past couple of years, tech and AI were actually relative underperformers in the global equity rally in 2025. Out of the Magnificent 7, only two stocks outperformed the S&P 500 index in 2025, and many more speculative names are trading substantially below peak levels reached in late October last year. This gives us confidence that markets are not fully in “bubble” territory yet as investors have demonstrated increasing discretion and focus on corporate fundamentals as the AI race pushes past its third year.
In addition, we recognize substantial opportunities outside of tech, and markets increasingly are as well. We see opportunities in healthcare as an unloved sector with light positioning. Improving policy clarity, stabilizing earnings growth and an acceleration in M&A activity are catalysts than can continue driving performance in this sector for the coming year. We remain positive on financials on attractive valuations, a strong earnings and net interest margin outlook based on a steep yield curve, still-unrealized benefits from deregulation, and growth from advising on deals in a booming capital market.
Outside of the U.S., EM equities, particularly those in Asia, can continue to benefit from substantial tech exports. Within EM, India’s attractive valuations (after significant underperformance last year) helps it stand out as an opportunity to get invested into a long-term domestic growth story, while South Korea and Taiwan can continue capitalizing on global tech demand and extend their strong streak of returns.
China is coming off a strong 2025, when equity markets outperformed (MSCI China +31%, CSI300 +26%). While tech led most of the strength in markets, performance was generally broad-based across most sectors and in both onshore and offshore markets. Looking ahead, we remain cautious on China’s macroeconomic outlook due to its uneven growth profile led by exports, but see growth opportunities in tech-related sectors (as we highlighted in our 2026 Asia Outlook).
We are reluctant to chase the rally in Chinese equities at the moment but there are opportunities to buy on dips. An uneven economic outlook constrains our outlook for onshore equities. In the offshore market, we see medium-term potential for more sustained performance in select innovative sectors such as AI and tech self-reliance beneficiaries in strategic technologies like semiconductors. We also see opportunities in high-quality dividend names and underperforming consumption stocks with compelling valuations.
Japanese markets have been in the spotlight recently with sharp swings in the yen alongside a surge in Japanese Government Bond (JGB) yields. Japan’s fundamental issue is that interest rates have been too low relative to growth and inflation fundamentals, especially since the pandemic. The Bank of Japan (BoJ) has kept rates low due to the large stock of debt (at over 230% of GDP). With potentially more expansionary fiscal policy from the Takaichi government through tax cuts, global investors have been pricing in fiscal risks through higher bond yields and a weaker currency. Fundamentally, as long as Japanese interest rates remain low, and the rate differential with the U.S. remains wide, the yen could stay relatively weak despite stopgap solutions like intervention. The next key date to watch is February 8th when the next snap election takes place, where markets will find out whether the Takaichi administration can regain or expand its majority the lower house to implement aggressive fiscal policies. Current polls suggest a potentially significant victory.
What does this mean for global markets? A key concern is a potential unwind of carry trades (where investors borrow in yen to fund positions in risk assets elsewhere) which led to a sharp selloff in global risk assets in August 2024. However, Japanese investors have not been very active in global bond markets in recent years. They generally invest hedged, and hedging costs have been uneconomical. While Japan has a large stock of foreign assets, futures positioning suggest the carry trade is not stretched.
While we remain tactically neutral on Japanese equities in the near-term after a strong rally, we continue to maintain conviction in the market’s medium-term outlook. Reflation appears to be persistent and further fiscal support can boost domestic consumption. There is increased political and fiscal support for sectors like tech, defense and power to boost growth and bolster strategic capabilities. Corporate governance reforms also continue to accelerate, with more cash returned to shareholders and re-investing for growth. Value-enhancing initiatives such as privatizations and spin-offs are also expected to continue.
Geopolitics have dominated headlines since the start of 2026, with Venezuela, Greenland, Iran along with trade and tariff-related issues introducing plenty of uncertainty into markets. Beyond these immediate concerns, we have embraced global fragmentation as a key theme of our Outlook. Investors can play offense in their portfolios by owning beneficiaries of fragmentation, and play defense by concurrently incorporating hedges against the risks of fragmentation in portfolios.
We see multi-year investment opportunities in equities (both public and private) and across markets (developed and emerging) based on the following themes:
All market and economic data as of February 2026 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
Past performance is not a guarantee of future returns and investors may get back less than the amount invested.
JPMAM Long-Term Capital Market Assumptions
Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. Please note that all information shown is based on qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only – they do not consider the impact of active management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The outputs of the assumptions are provided for illustration/discussion purposes only and are subject to significant limitations.
“Expected” or “alpha” return estimates are subject to uncertainty and error. For example, changes in the historical data from which it is estimated will result in different implications for asset class returns. Expected returns for each asset class are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or lower, as they have been in the past, so an investor should not expect to achieve returns similar to the outputs shown herein. References to future returns for either asset allocation strategies or asset classes are not promises of actual returns a client portfolio may achieve. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making a decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. The model assumptions are passive only – they do not consider the impact of active management. A manager’s ability to achieve similar outcomes is subject to risk factors over which the manager may have no or limited control.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results.
Diversification and asset allocation does not ensure a profit or protect against loss.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
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Index Definitions:
XAUUSD is the ticker symbol representing the spot price of one troy ounce of gold (XAU) against the United States dollar (USD) in the forex market. It defines the amount of USD required to purchase one ounce of gold, functioning as a digital currency pair used to speculate on price movements.
SPX Index is the ticker symbol for the S&P 500 Index, a market-capitalization-weighted index tracking the performance of 500 of the largest publicly traded companies in the United States.
MSCI China Index measures the performance of large and mid-cap Chinese equities, covering H-shares, B-shares, Red chips, P-chips, and foreign listings (e.g., ADRs).
CSI 300 Index is a free-float, capitalization-weighted stock market index consisting of the 300 largest and most liquid A-share stocks listed on the Shanghai and Shenzhen stock exchanges.
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