Investment Strategy
5 things working in markets today
Key takeaways:
- Last week, within just a few days, geopolitical tensions eased, rate cut bets surged, and U.S. stocks reached new highs.
- As we enter the second half of the year, markets seem caught between two forces: strong fundamentals versus unresolved risks around tariffs and global tensions.
- We believe the focus should remain on what is working—and currently, momentum favours strength, driven by diversified portfolios, regional diversification, bank stocks, IPO momentum, and long-term secular themes such as defence.
- If you're hesitant to deploy capital, consider a phased-in approach. This strategy has historically outperformed holding cash and smoothed out volatility.
Geopolitical tensions eased, rate cut bets surged, and U.S. stocks hit new highs—all in a few days.
Trump's Monday night announcement of an Israel-Iran ceasefire, defused geopolitical risk and sent oil prices plunging -12%—the sharpest weekly drop since 2022. As markets exhaled, a flurry of dovish Fedspeak reignited hopes for rate cuts, even in the face of strong economic data.
The result? A global rally that saw the S&P 500 catapult back to record highs, fully rebounding from its near-bear market just months ago. Leading the charge was tech, with the NASDAQ 100 smashing through to its own fresh highs.
Europe jumped into the upswing as Germany fast-tracked fiscal stimulus, and the NATO summit’s 5% defence spending pledge was the highest since the Cold War. Meanwhile, Japan's Nikkei enjoyed its best week of 2025 yet.
As we enter the second half, markets are caught between two forces. On one hand, there's the strength of robust earnings, minimal defaults, resilient consumers, a balanced labour market, and inflation close to the Fed's target. On the other, unresolved risks from tariffs and global tensions threaten to disrupt the journey ahead.
How should investors respond? We believe the focus should remain on what is working—and right now, momentum is on the side of strength. Here are five things working in markets right now.
1. A diversified portfolio is doing its job
A global 60/40 stock/bond allocation is up over +8% year-to-date (in USD terms)—a clear sign of resilience in a market still contending with disinflation, tariff risks, and lingering (albeit fading) geopolitical uncertainty.1 Despite these challenges, central banks continue to lean towards easing.
Within U.S. equities, industrials (+12% total return), utilities (+9%), financials (+8%), and tech (+7%) have led the charge higher, with the latter three among our preferred sectors. We anticipate further upside from here.
Bonds, too, are pulling their weight. U.S. core bonds have rallied close to +4%, while their global, currency-hedged counterparts have gained close to +3%. When tariff fears flared, bonds held steady—and even outperformed, despite focus on U.S. debt and fiscal risks.
Even if our base case doesn't pan out, diversification is proving its worth. When the S&P 500 plunged -19% at its worst this year, a balanced global 60/40 portfolio was down roughly half that at -10%. Bonds now offer what we didn't see pre-pandemic: the potential for income and a shield against growth scares.
Higher yields offer opportunities for bond investors
Yield, %, USD terms and USD-hedged
Sources: J.P. Morgan Private Bank, Bloomberg Finance L.P. Data as of 26 June 2025.
2. Regional diversification is delivering
Investors seem to be shifting away from a U.S.-centric mindset—and the results speak for themselves.
While U.S. markets have been buoyed by AI and financials, broader earnings momentum remains limited. In contrast, tech in Europe and China is showing both strength and breadth, signaling potential for continued growth.
So far this year, performance has followed suit: USD investors are up roughly +20% in both Europe and China, compared to just over +5% in U.S. equities.
While stock markets earlier this year were engulfed by tariffs and geopolitical risks, recent catalysts seem to have flipped the narrative. Resilience is emerging, and global exposure is proving to add real value.
3. Deregulation is buoying U.S. banks
After years of tight regulation, U.S. banks are encountering a new landscape. The Fed appears to be easing key capital rules, potentially reasserting banks' role in driving economic growth.
Specifically, the Fed proposed lowering the supplementary leverage ratio (SLR) from 5% to a range of 3.5%–4.5%. While the details are technical, the impact is clear: banks would be freer to deploy excess capital—through more lending, increased market activity, and greater returns to shareholders.
Adding to the momentum, the largest U.S. banks just passed the Fed's latest stress tests, proving they're strong enough to weather a severe downturn. That gives regulators confidence—and gives banks room to act.
Overall, U.S. banks are sitting on roughly $200 billion in excess capital. So while financial stocks are already up some +8% this year, putting that to work—through the likes of loan growth and buybacks—could energize both markets and the broader economy as regulation eases and balance sheets remain strong.
For years, government spending has outpaced bank lending—and from that lens, doing more economic heavy lifting. But as banks gain more flexibility, a shift in the balance stands to add fuel to growth.
4. IPO momentum is building
After a prolonged drought, the IPO floodgates are reopening. High-profile debuts like Circle and CoreWeave have reignited investor appetite, signaling a shift in sentiment. May marked the strongest month for global IPO and M&A activity since 2022, despite a brief slowdown following 'Liberation Day.'
Private equity has been at the forefront, backing a record 55% of capital raised on major U.S. exchanges. Year-to-date, IPOs have amassed $29.1 billion in the U.S.—a 45% increase from the same period last year. AI is also making waves, seeing deal activity skyrocket to $150 billion, up from just $20 billion last year.
Two of the year's five largest U.S. IPOs are trading higher, with a weighted average gain of over +50%—a reflection of growing investor appetite. As interest rates look set to fall and regulations stand to ease, we anticipate this pipeline will remain active and continue to grow.
U.S. IPOs are yielding outsized returns
2025 IPO debut performance by region, weighted-average, %
Source: Bloomberg Finance L.P. Data as of 25 June 2025.
5. Long-term themes like defence are showing strength
Following the Israel-Iran ceasefire, defence stocks experienced a brief ‘buy the rumour, sell the fact’ pullback—Northrop Grumman, RTX, and Lockheed Martin each fell over -3% on the day. However, the broader trend remains robust: S&P 500 aerospace and defence companies have surged over +25% year-to-date, with Palantir ranking as the second-strongest performer in the entire S&P 500 index.
While the immediate risk of escalation in the Middle East may have diminished, the long-term case for defence is only growing stronger. Last week, European NATO members pledged to increase defence spending to 5% of GDP—a level not seen since the Cold War.
It's not just traditional defence sectors like missiles and jets benefiting from rising budgets. Increased defence spending is spilling over into critical adjacent sectors such as energy, infrastructure, supply chains, and cybersecurity—areas we view as major beneficiaries of this secular shift.
What it means for you
Markets are moving through a catalyst-heavy stretch—tariffs, taxes, geopolitics, and policy shifts are all in play. In uncertain times like these, our goal is to help investors stay positioned, not paralysed. To echo our Mid-Year Outlook, finding comfort in an uncomfortable environment.
If you’re hesitant to deploy capital, a phased-in approach may be a helpful consideration. Historically, consistently phasing-in has outperformed sitting in cash and helped smooth out volatility. Your J.P. Morgan team is here to explore your portfolio with you.
Historically, phasing-in has beaten cash, despite sacrificing some returns
Multi-asset allocation: investing all at once vs. phasing in, 3-year annualized return
Source: J.P. Morgan, Bloomberg Finance L.P. Data as of 7 May 2025. Performance analysis began on 31 December 1989, using index returns for an allocation of the S&P 500 Index and Bloomberg U.S. Aggregate Bond Index, rebalanced quarterly. Excess cash during phasing-in is invested in 1-3-month T-Bills. The range shown spans the 5th to 95th percentile of observations, with the middle line as the median. In the 3 Tranches method, cash is deployed in 3 increments over 2 months: 1/3 on 1 January, 1/3 on 1 February, and 1/3 on 1 March. The 6 Tranches method deploys cash in 6 increments over 5 months: 1/6 on 1 January, 1/6 on 1 February, continuing until 1/6 on 1 June. The 12 Tranches method uses 12 increments over 11 months: 1/12 on 1 January, 1/12 on 1 February, continuing until 1/12 on 1 December. The 24 Tranches method deploys cash in 24 increments over 23 months: 1/24 on 1 January, 1/24 on 1 February, continuing until 1/24 on 1 December of the following year.
1A global 60/40 stock/bond allocation is up over +8% year-to-date (in USD terms) is represented by the Bloomberg Global EQ:FI 60:40 Index, which is designed to measure cross-asset market performance globally. The index rebalances monthly to 60% equities and 40% fixed income. The equities and fixed income are represented by Bloomberg Developed Markets Large & Mid Cap Total Return Index (DMTR) and Bloomberg Global Aggregate Index (LEGATRUU) respectively.
KEY RISKS
All market and economic data as of June 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
Important Information
Despite markets being caught between strong fundamentals and lingering uncertainty, we zero in on what’s working.
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