Investment Strategy
After the Fed cut: Why investors should go global
Key takeaways:
- The Fed’s first rate cut this year comes in a cooling—not collapsing—economy, an environment that typically boosts risk assets.
- We think US markets should still anchor global portfolios, but stretched valuations and narrow leadership make diversification vital.
- Europe’s recovery is accelerating, powered by fiscal spending, corporate investment, and rising defence budgets.
- Emerging markets add breadth, with Taiwan, South Korea, and India standing out. China is a two-speed market: soft macro, but compelling opportunities in AI, EVs, and semiconductors.
The pause is over.
The Federal Reserve just cut rates for the first time this year—25 basis points to 4.00%–4.25%.
Markets cheered. US stocks vaulted to new records, with the S&P 500 logging its 27th record of the year and small-caps even hitting highs last seen in 2021. Just months ago—in the throes of trade tensions, geopolitical flare-ups, and doubts swirling around AI—few may have pictured 2025’s ‘everything rally’: a wave of optimism now sweeping global markets. The laggard? Cash.
The ‘everything rally’ – except cash
Year-to-date total return, %
Source: Bloomberg Finance L.P. Data as of 19 September 2025. Note: Gold represented by the XAU/USD spot exchange rate. Global Aggregate Bonds represented by the Bloomberg Global Aggregate Index. Treasury bills represented by the Bloomberg US Treasury Bill Index. EM refers to Emerging Markets. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
There’s an important distinction to last week’s move: the Fed acted out of opportunity, not necessity—a preemptive step to contain a slowdown before it escalates. When policy eases in a cooling, rather than contracting, economy, risk assets often gain renewed momentum.
We continue to have conviction in US markets, but the story is expanding. Europe’s recovery, emerging markets’ resurgence, and China’s innovation drive are all worthy of noting.
This week’s Top Market Takeaways builds on our rate-cutting playbook—following finding income in fixed income and positioning for risk asset outperformance—to dig into why now is the time for global diversification.
Why look beyond the U.S. now
Again, we still see strength in US markets. Earnings remain resilient, innovation is surging, and in turn, valuations look justified. The US remains the anchor of our global multi-asset portfolios.
But one market cannot do it all. International exposure offers additional qualities: attractive entry points, different sector mixes, and potential currency tailwinds. That balance matters. As a guide, allocating about 15% of a balanced stock–bond portfolio outside the US is a solid starting point, tailored to mandate, liquidity, and risk.
Europe and emerging markets trade near 15x forward earnings—a 40% discount to the US. They also provide broader leadership. While the S&P 500 is led by mega-cap tech, international markets offer access to the defence boom, the energy transition, and other nascent growth drivers. And when the Fed cuts outside recessions, a softer dollar has typically boosted overseas returns for US-dollar investors.
In short, diversification broadens opportunity, reduces concentration, and helps smooth volatility.
Europe’s recovery is gathering pace
Growth has steadied, inflation is hovering around 2%, unemployment is at cycle lows, and credit demand is picking up. With the European Central Bank now on pause, monetary policy is no longer a headwind.
Markets have taken notice: the Euro Stoxx 50 is up about 13% this year in local terms—and more than double that in US dollars.
The rally rests on a stronger domestic story. Germany is deploying €500 billion in public support and over €600 billion in corporate investment into the likes of semiconductors, clean energy, power grids, and advanced manufacturing. Defence budgets are increasing across the region, with spending set to kick-in in 2026. That signals earnings momentum ahead.
In turn, that backdrop of improving fundamentals supports Europe’s valuation shift, with forward earnings now at 15x—above the long-term average.
The opportunity set is widening: banks are returning capital, industrials and automation suppliers stand to benefit from infrastructure upgrades, and utilities linked to the energy transition offer reliable cash flows. Companies anchored in Europe’s domestic recovery also help limit exposure to currency strength and tariff risks.
Emerging markets are showing renewed strength
The MSCI Emerging Markets (EM) Index is up around 25% this year, fuelled by Fed easing, a softer dollar, and steadier trade flows.
Emerging markets matter: they represent nearly 60% of global GDP, almost half of exports, and much of the world’s key resources. When liquidity improves, they are often the first to benefit.
However, faster-growing economies don’t always deliver faster earnings. Performance is uneven, making selectivity crucial. We’re focused on markets with clearer profit growth and structural tailwinds:
- Taiwan: At the centre of the AI boom, Taiwan is set to produce 90% of the world’s AI servers. TSMC leads with about 70% of global advanced chip production. This strength is reflected in the economy: exports hit a record $58.5 billion in August, up 34% year-on-year, prompting the central bank to raise its 2025 growth forecast to 4.6%.
- South Korea: A semiconductor powerhouse, South Korea produces the memory chips behind everything from smartphones to AI data centres. Chip exports surged 27% in August to a record $15.1 billion, while governance reforms are encouraging companies to return more cash through dividends and buybacks.
- India: The world’s fastest-growing major economy, with the IMF projecting 6.4% growth in 2025. Infrastructure and manufacturing are accelerating, monetary policy is easier, and earnings—after a tough start this year—look set to recover, keeping India’s domestic-demand engine running.
In all, we see the most compelling opportunities at the intersection of attractive valuations, a softer dollar, and durable long-term growth.
China’s two-speed story
China remains a complex market. Shares have rallied on stimulus hopes and clearer tariff rules, but the macro backdrop is still fragile. Deflation persists, credit demand is weak, housing continues to decline, and industrial output is subdued. Private sector confidence remains low, and policy support has been incremental rather than sweeping.
Exports are the exception—resilient and the main driver of growth this year, helping Beijing stay on track for its full-year target. Still, we would need clearer signals—stronger consumption, an exit from deflation, and firmer earnings—to turn more constructive on the broader market.
The bigger story for investors continues to be China’s shift in growth model. The old reliance on property and heavy industry is giving way to ‘high-quality’ growth—stabilising housing and government finances while channelling capital into advanced technology and infrastructure.
With regulation steadying, China’s push into new technologies is gathering pace. We are focused on a select group of innovative companies—large and mid-sized—linked to AI and super-apps, electric and autonomous vehicles, and semiconductor localisation. Given the sharp rally so far this year, structured products may offer better entry points and help manage volatility.
What it means for you
The Fed’s first rate cut this year has shifted the landscape for global investors. Easier policy typically boosts risk assets, but with US valuations stretched and market leadership narrow, we think investors should also consider opportunities elsewhere.
Europe offers a recovery story underpinned by fiscal spending and defence investment. Emerging markets provide breadth, with Asia’s technology hubs and India’s domestic-demand engine standing out. China remains complex, yet selective exposure to innovative firms in AI, EVs, and semiconductors still holds promise.
The takeaway: don’t abandon the US, but look beyond. Diversifying across regions can broaden opportunity, smooth volatility, and capture growth stories a US-only portfolio may miss. Your JPMorgan team is here to provide insight on what this means for you.
KEY RISKS
All market and economic data as of September 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.
- All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.
- Investments in commodities may have greater volatility than investments in traditional securities. The value of commodities 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. Investing in commodities creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
- Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team. If you are in any doubt about the risks involved in the product, you may clarify with the intermediary or seek independent professional advice.
Important Information
From Europe’s recovery to Asia’s growth engines, opportunities are broadening beyond the US
Madison Faller
Global Investment Strategist
Federico Cuevas
Global Investment Strategist
Published Sep 22, 2025
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