Revisiting our 2025 Mid-Year Outlook: Comfortably Uncomfortable 

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Hi, everyone. Thanks for spending the time with us.

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Text: Jake Manoukian, U.S. Head of Investment Strategy, J.P. Morgan Private Bank.

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My name is Jake Manoukian. I lead investment strategy in the US for JPMorgan. And

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this morning, I am joined by two of my colleagues, Abby Yoder and Sam Zief. And they're going to help me break down the outlook at what is we think a very exciting time for markets and for investors.

Before that, we know this webcast was titled Revisiting Our Midyear Outlook. But we don't want to spend too much time doing that. Our midyear outlook was called Comfortably Uncomfortable. And it seems like markets are very clearly skewed towards the comfortable side of the spectrum.

So far, year-to-date, the S&P 500 is approaching a 13% return. Global equities are up almost 16%.

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Even fixed income, which has been a maligned asset class, is performing strongly, up almost 6%, and then other standouts like gold, AI theme, et cetera. So performance has been strong despite some of these pervasive risks, whether it's tariffs, whether it's business uncertainty, whether it's a soft labor market, whether it's geopolitical events, but markets continue to power through.

What we wanted to do, though, is play a little game. And I gave Sam and Abby an assignment. And what Sam and Abby are going to run through is one big headline for the rest of the year-- one under-the-radar trend that we should start watching, and then one risk that we should start paying attention to. So with that set up, Sam, what is the big headline for the rest of the year? What's going to drive markets?

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Text: Samuel Zief, Global Macro Strategist and Head of Global FX Strategy, J.P. Morgan Private Bank.

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Well, first, thanks for having me. This is fun. I mean, I'm biased, but for me, it's the Fed cutting cycle. We're back. Nine months after the last cut, we're now embarking on another round of insurance cuts, risk management cuts. There was a lot of hype, I think, around this meeting yesterday-- people were talking about the potential for a 50 basis point cut, or a lot of descents. But I think what you really got was a Fed that's not too far away from our own thinking.

It's a Fed that's slowly, gradually moving out of restrictive territory. They don't see any need to really be restrictive anymore to ensure the economic expansion continues. A lot of the focus, I think, has been on, well, what's the pace of cuts? Where are we going from here?

The median FOMC participant penciled in two more cuts for the end of this year. But if you zoom out and look really at the dots, they're almost evenly split on the committee between two more cuts and no or one more cut. So again, it's really about a gradual pace of normalization from here.

And how do markets usually do? We'll get more into this, but if the Fed is cutting and you're not cutting amidst a recession-- risk assets do well, the front end of the fixed income curve does well.

So far, I mean, we're filming live, S&P 500 is at all-time high today, up about 60 basis points. So it seems like markets are kind of reading that bullish outlook from the Fed. But can you just take us inside the mandate and what the Fed is trying to achieve, because they're trying to balance labor market outcomes with inflation outcomes? So were there any hints about how they're thinking about that balance, like in the meeting?

So definitely. So they've been very clear that you're in this weird period where their inflation mandate is kind of coming into conflict with the unemployment side of their mandate or the employment side. And they've been very clear that basically what they're going to do is look at how far from their mandate they are on each side, and then balance those. And then that will be how they set policy.

And for the last nine months, or one year almost, they were definitely more focused on the inflation side of the mandate, with tariffs and import cost increases. And now they're seeing more increased risks to the labor market, and so they're gradually shifting. And so policy is in a restrictive place. And they're basically now saying that was the right place to be for the last nine months. But now as we see some risks to the unemployment rate moving higher, now it's time to move out of restrictive territory. And that's what they're doing.

But I do think it's interesting that the Fed is cutting rates when inflation is closer to 3% than 2%. What's the macro read on that? And then, Abby, how should the equity market think about that, too?

Yeah. So I'll start. At least on the macro side-- you're getting to my point, which was going to be the risk that I'm watching. But really, as long as you think that the increase in inflation is largely tariff-driven, largely focused on goods, and doesn't bleed into services-- the more labor market sensitive part of the inflation basket-- the Fed believes, and we believe, that that's kind of a one-off price adjustment. And you can look through it.

So I agree. It's a little bit of an awkward optics situation. But as long as that remains the case, and all the data-- we'll get more into this, I think. But as long as all the data continues to point in that direction, it's OK to focus on the employment side of the mandate.

And then quickly, what does history tell us about how markets perform during an environment that we're seeing today, which is the Fed gradually reducing policy absent a recession?

Yeah. If you're basically doing an insurance cut or the soft landing cutting cycle, let's call it, equities perform very, very well, both in the US and globally, because the dollar tends to depreciate over that time period. I think, on average, across those types of cycles, the S&P 500 is usually up about 20% over the next year. International equities are up either that or slightly more.

And then when it comes to fixed income, the carry part of your profile is what does the best-- extended credit, earning your coupons, rather than expecting a big decreasing rate to lead to price appreciation. So you tend to start in the front end of the curve, not ultra-long duration.

Got it. So, Abby, is the big story for the equity market the Fed, or is it something else?

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Text: Abigail Yoder, U.S. Equity Strategist, J.P. Morgan Private Bank.

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Well, I think just to focus on what Sam was talking about in terms of inflation increasing but growth coming down at the same time-- at least for a temporary period, that is the view-- the equity market seems to be looking through that-- looking through that temporary weakness that we're expecting in growth, looking through that one-time increase in inflation, which is mostly, to your point, goods related, which is only a mid-single digit percent of net income for the S&P 500-- so not a meaningful contribution in terms of that net income outlook.

And it's looking through that and looking importantly-- and I don't know if you're going to touch on this, but the growth outlook actually looks pretty good. The bond market seems to be paying attention to the labor market, and the equity market seems to be paying attention to what's happening from an activity and economic standpoint.

So I think that's what's really going on. And that's why we continue to hit all new all-time highs. I mean, that's part of the reason why. I think the other big component, and this is my big story for the rest of the year, is really related to AI, which came into the year, were coming into the year, was the big story. It was all the rage, and that's where everyone wanted to be positioned. Following DeepSeek and following the route that we saw through April, it became a back burner.

And that only really came back to play in terms of reigniting that-- let's call it the Mag Seven-- in terms of their performance after 1Q and 2Q earnings, where we just saw really, really strong results. These companies are huge, and they're accelerating their growth rates on a quarter-over-quarter basis. So you're starting to see real numbers around the revenue generation in terms of these cloud businesses that are coming through.

And we're going to get into this. From an adoption standpoint, it's still really low if you're thinking about the government data, looking at mid-single digits in terms of corporate adoption. And it does feel like we're at this inflection point where you move away from training, which is training data for these AI models, which is intermittent in nature. And it's kind of singular in nature to inference, which is much more streamlined and workflow-related, that can then be continuous and build upon itself.

Yeah, because I feel like sometimes-- the people who are bearish on AI because the AI isn't good enough and it can't really do anything, so that's the MIT study that came out that say enterprise adoption fails. And then there's the people who are bearish about AI because they think it's going to take everyone's job and we're going to have mass unemployment. So where do we fall in that broad spectrum?

I mean, we're bullish on what the technology can do. I think the way that it's been characterized by a couple of very prominent CEOs at the moment is that this is a hard, longer-term integration that needs to happen for big businesses to really think about how you can get it across their workflows to really make that productivity enhancement come through. So I think what that really means is we're kind of in the earlier innings than I think most people would probably suggest in terms of their view, at least on the bearish side.

So I do think, again, we're at this inflection point in terms of adoption, where you start to see the real productivity enhancement. And you've written about obviously the labor market implications from it. And obviously, we would agree with that.

But I think that you made the key point, which also explains why the Comfortably Uncomfortable mid-year outlook title ended up being pretty prescient, is that the corporate earnings just outweighed all of the stuff that was making markets uncomfortable. And when you have the hyperscalers delivering results like that because of the AI inflection, they can really power through a lot of headlines.

Yeah. And I think the concern-- and this is totally valid-- these numbers are absolutely enormous. $400 billion in one year from a handful of companies is astronomical. And that number just continues to move higher.

So is that 400 billion like a CapEx spend?

A CapEx from hyperscalers, from four to five major hyperscalers in 2026, is absolutely huge. And the revenues are increasing in terms of their AI contribution from these companies, but it's still not near where they are in terms of what they're spending. So we understand why it's uncomfortable. But seeing that increase and that incremental revenue growth is very important in terms of our positivity.

Yeah. If I'm just going to jump in, I think this is actually really interesting from the macro side and the economic side, because I think we've been all over this theme when it comes to the equity market. But what we're seeing on the econ side is actually that the economy is becoming-- there's another pillar of support, let's say, where the US economy is usually very consumption-driven, a lot of consumer spending.

But actually, in the first half of this year, the contribution to GDP growth from AI, CapEx spend, software, technology, just infrastructure, technology around that contributed more to US GDP than consumption overall, even though consumption is 70% of the economy.

So this is something that we're also watching from the econ side, because it's providing this other pillar of support to the economy at a time where we're seeing some slowdown in consumption. So it's good and bad. It's good that there's this other pillar of support. It's also important to monitor if there's any slowdown in this technology going forward, which we're honestly mining all of the data we possibly can for any warning signs, and we just don't see it. Like you said, Abby, it's all just continuing to go.

And the concern on the econ side from the bears would be where is it showing up in the productivity data from an economic standpoint as well.

Or I guess, is there any additional leverage in the system that's being used to finance spending that might not be productive and might not actually pay off, because that's how you inflate a bubble. But it seems like taking everything the way we see it. Some of the ingredients are there. There's this narrative around a paradigm shift, but so far, the business and earnings results are there. And so far, it's been a strong support for the economy.

Exactly.

Well, and I would say on the misallocation in terms of-- these are big dollar numbers. There's going to be money that is spent that is not productive. We don't think that all of that money will be--

It's not going to be perfect.

--and that necessarily everyone winning today is going to be winning in the future. This is a very ripe environment for thinking about where you can see pockets of opportunity that might not be very evident right now.

OK. So it seems like from both of your big stories, I'm feeling pretty good about the environment for risk assets. I mean, I have the support from the Federal Reserve that's cutting absent a recession. And I have the support from the AI, CapEx, and productivity potential that the market is seeing and seeing enough evidence that it's actually real to continue to engage with.

I'm wondering, though, we're already moving into what 2026 is going to be about. So now what I want to hear from both of you is when we're reading all those 2026 outlooks, what is the big story going to be? It might be under the radar today, but where's the puck going?

Am I starting? OK, I'll start.

Let's start with you, Sam. Let's go macro, and then we'll hit equities.

I think it is underappreciated when the economy is in a slow period right now, where GDP growth probably in Q4 and into the end of the year is going to be-- let's call it sub 1%. But all of the forward-looking indicators that we're focused on suggest that growth is going to pick up in 2026, and I don't think that's fully appreciated.

For example, financial conditions, the Fed has only just cut once. But financial conditions-- equity prices, credit spreads, sentiment have all improved considerably in recent months. If you just take some simple models, it looks like that's going to boost growth in 2026, all else equal, by maybe half a percent.

Small businesses have really been the focus of the economic weakness so far in 2025. But now the Fed is cutting. It's going to steepen the yield curve. Small regional banks tend to do more lending in that type of a scenario, and so that should improve the small businesses' access to credit, help stabilize one of the main areas of weakness in the economy.

You've seen economic policy uncertainty come down considerably in recent months. And actually, with that, you've seen businesses' own expectations for economic outlook 6 to 12 months forward in surveys improve. And usually that does a good job of leading economic growth. So we're starting to see it in the data and get increasingly more constructive that in 2026, we're going to bounce back in terms of growth back towards the trend.

And are equity markets seeing that? Is that consistent with how they're pricing?

Yeah. And I think that that's under the radar in terms of what we're thinking about from a year-ahead standpoint as well. As we all know, over the past couple of years, the equity market has been driven both from a performance standpoint and an earnings standpoint by just a handful of companies.

And I think underpinning that is what was going on with rates. They were in very restrictive territory. That's very difficult for cyclical parts of the economy and the market. And 40% of the S&P 500 market cap is cyclical in nature. Small caps are the epitome and the showcase in terms of cyclicality, too.

And so the fact that you're embarking on this rate-cutting cycle, you have easier financial conditions, like, is this the year that we start to finally see that broadening out? Because that's been a call from a lot of the street across the past couple of years that we'd start to see that. This year was the same. Coming into this year, the 493, we're expected to grow 12%-- now they're expected to grow 7%. So a little bit of a disappointment in terms of that.

But I think that this step function change where you're seeing just a combination of Fed policy and fiscal policy in terms of the tax-- not tax cuts, but the tax extensions and the immediate expensing of CapEx-- that could really bode well for the more cyclical parts of the economy.

Sam said as part of the rate-cutting playbook and the historical examples that ex-US markets tend to perform just as well, if not a little bit better than the S&P 500, the question I have is, how do we think about broadening out down in the cap structure or into other pockets of the market that aren't AI and tech exposed, versus diversifying away from the US and seeing opportunities in ex-US markets?

Well, they're similar in nature, because the conversation is really around how do you diversify outside of what is probably your exposure to what is the Mag Seven in tech in large cap. So they're similar in nature. I would say EM is really interesting because you have this confluence of declining interest rates, which allows EM central banks to continue cutting their rates. You've got US dollar depreciation, which is good for them in terms of their currencies, and they don't have to think about the inflationary impact.

So that all really sets up nicely for an asset class that still trades at a discount 14 times for earnings growth that is in excess of the S&P 500 in terms of 2026 expectations. Small cap is interesting in the US. You're just starting to see an inflection in terms of earnings. That's where our hesitation was prior. You were still seeing negative revisions in terms of earnings, but you're starting to see that trend higher now after 2Q.

And when you think about the composition of the small-cap indices, 55% of their debt is floating rate versus 90% fixed rate for the S&P 500. And their average maturity is something like four years versus 10 years. So just thinking about the opportunity to see more incremental positive for them.

So when I think about the theme of economic acceleration with declining interest rates, with a little bit of broadening out in the equity market, a couple of asset classes that also come to mind are private equity, which is similar dynamics to the small cap space, where they have a lot of floating rate leverage, and they could see some relief there. Same thing with real estate, potentially, if we have some relief on the interest rate side. So I just want to point out those two potential opportunities as well.

So far, feeling great. But there's got to be some risk that is on the horizon that has the potential to disrupt markets, that has the potential to disrupt this base case, which seems pretty positive for balanced portfolios. So, Sam, I'll start with you again. What should be on our radar? What's going to be the thing that kind of-- is the fly in the ointment that disrupts this picture?

Yeah. So I think the really constructive picture is there so long as two things hold true. One, the US economy doesn't slide further into weakness or into recession. I think I laid out all the forward-looking indicators that make us confident that's not going to be the case. And you also need to be confident that inflation isn't going to become an obstacle to the Fed, providing a backstop to the economy and easing rates over the next year.

There's really only two ways that I think the Fed would be derailed in its current path. One, long-term inflation expectations. Long-term inflation expectations are what the Fed really, really cares about. But every indicator we have, and we track things across surveys of businesses, of consumers, of professional economists, we look at market-based measures of inflation expectations, and everything suggests that they're very well anchored around 2%. So we're monitoring that. That shouldn't really stand in the Fed's way.

The other is if the inflation impulse, and we talked about it before, bleeds from tariff-related goods inflation into services inflation. What makes us confident that's not going to happen, though, is that to get services inflation-- which, again, is labor market-sensitive and wage-sensitive-- to really become persistent and see persistent upward pressure, you usually need a tight labor market wage growth to be picking up. That's what we saw in 2022 and into 2023.

And right now, if you look at wage growth trackers or anything like that, it's quite benign because the labor market is relatively loose. It's certainly not tightening. We can debate how loose it is. And as long as that's the case, again, this should be a one-off price adjustment, should allow the Fed to continue providing a backstop to the economy. But those are two really important risks that we're going to be monitoring.

And to dig a little bit deeper into that, I do think it's interesting that the Fed is lowering interest rates when inflation is currently-- I said this before-- closer to 3% than 2%. So it's maybe not a risk in the most dramatic sense. But for an individual investor who's been enjoying elevated rates on cash, now you think about a world where, OK, if inflation is going to be 2.5% or 3% and cash rates are going to be 3.75% or 3.5%, and I'm getting-- for a US taxpayer, I'm paying federal taxes on that money, you're starting to get to a point where inflation is really corrosive for maintaining your purchasing power.

And I think that's a fundamental aspect of investing that is going to have to come to the forefront as we're in this environment where-- even if we don't get the dramatic repricing of inflation expectations and Fed hikes again. It's just we're in a very different inflation environment.

Yeah. I think that's absolutely right. And in that world, we're really laser-focused on where can I make up for declining cash rates-- if I've been sitting in cash-- along the fixed income spectrum. I mean, equities is obviously top of mind, but we're really not looking at short-dated treasuries all that much. It's pricing in a lot of Fed easing.

So we've been taking a little bit of credit risk, mostly investment-grade credit, high quality. We're not really moving down the capital structure too much, avoiding the long end of the yield curve, the Treasury yield curve, just in case you do get some upward pressure on inflation. But yeah, I think trying to find positive real returns after the ease of doing that in cash over the last couple of years is going to be really important.

Yeah. You can pull different levers in that, whether it's infrastructure, whether it's equity-linked structure. No. There's a lot of different asset classes that aren't part of that traditional 60/40 portfolio that can help there. So, Abby, there's a lot of risk to potentially watching the equity market, but what's the one that you're most focused on?

Well, as you were describing, the outlook in terms of the rate and inflation outlook, it's like a perfect situation for equities. You've got declining rates and inflation, where it's really good. 2.5% is actually really good from a nominal earnings standpoint-- revenue and earnings.

So when we were originally talking about this, I was thinking rates, and it was more on if they move really high. But I actually think the bigger risk today is that the Fed is behind the curve. And we're actually in a recession, which obviously isn't good for equities. So I do think that that's the bigger risk that we have rates come down meaningfully and not for the right reason.

And so what does that mean if that is the big risk? You look at an equity market that is increasingly pricing in the kind of benign sweet spot outcome that we expect, what? A 22 times forward price earnings multiple in the S&P 500. It's trading at all-time highs. It's rarely been this concentrated. What would that negative outcome mean for a portfolio that's only invested in the S&P 500, for example?

Well, what's interesting is the concentrated nature of the index and that exposure-- it's tech-- and that's been a structural growth driver. They're not cyclical. They're not going to be as exposed to what's happening with the Fed or the labor market or inflation, like AI is a secular trend. So I think there's a little bit of defensiveness that you can think about in terms of the S&P 500 that you wouldn't normally have historically had in a cyclical downturn.

But, to your point, on valuations, they're at the highest level that they've been in the past couple of years. And so that is suggesting that it's priced to perfection a little bit to a certain point. So if you do have a hiccup around what's going on from the growth and inflation standpoint, should you see some volatility? Probably. We haven't seen much since April, so it wouldn't be that much of an aberration.

We had plenty in April, though.

We did. I know. I'm good for the year.

When it comes to the growth side, because this is where someone in my seat pays a lot of attention to what we learn from companies, there's no doubt that labor demand, let's say, is slightly weak at the moment. Average payroll growth is only $20,000 to $30,000 on a monthly basis over the last few months. But you really don't tend to get big layoff cycles where that number actually dips into negative territory, and companies are shedding jobs unless their profits start to decline and their profit margins start to come under pressure.

And so while the labor demand is kind of subdued at the moment, profit margins, when you look at the S&P 500, are at the widest they've been of the cycle. So something that we're really paying attention to for signs that the Fed is behind the curve, which we don't think it is, would be, well, if profit margins start to compress, maybe there is going to be an issue with jobs, and we just don't see it. That's not the--

I would agree with that. And they continue to just come in better than expectations. It's not even just that they're high-- they're elevated-- and on a quarterly basis continue to come in above where the original expectations are. So that's important, too, when you're thinking about rate of change.

Yeah. We tease this a little bit at the beginning, but one other risk that maybe I'd pose is that we're at the early stages of a bubble around this idea of an AI buildout. And I think when you think about historical examples of bubbles, you clearly have this idea of a paradigm shift. The world is going to change because of AI, and people are obviously very excited about it.

But what are we looking at, or what are your teams looking at to give us that confidence that we're not really in a kind of artificially-inflated environment? And you can start to make the case that some of this is starting to percolate. IPO markets have started to pick up again, the AI theme, I think, is up 70% over the last year, which is a pretty staggering number. What makes us confident that we can continue to ride the AI train?

Well, for us, it just always comes back to the fact that you're seeing earnings growth really come through. When we're having conversations with clients about the concentration and the fact that the top 10 names make up 40% of the index, if you look at that increase, it's matched by the earnings contribution from these companies. It's very important when we're thinking about that.

So when you're thinking about, let's say, the Mag Seven and their valuation, they're trading at 30 times, and their returns are astronomical since the lows in April, but they're married with earnings revisions that are in that same vicinity.

So it may be set a different way. It hasn't been like a valuation expansion story?

No. The rest of the market is actually more where you've seen valuation expansion not combined with positive earnings revisions-- that 493 cohort, let's call it. So I think that's an important thing when we're thinking about where are we from a bubble standpoint. We just aren't seeing it in terms of the earnings contribution.

From our side, again, that was a discussion around whether it's a market bubble. We're trying to focus on it. Is there any sign of a bubble in terms of overinvestment? If a certain sector gets overinvestment and then the technology disappoints or doesn't pay off, then that can be a big hit to the economy.

And so we're really focused on two things, which is one, overall adoption. And you mentioned the government data. We've seen some alternative data sources-- still seems like it's very early. There's not signs of maturity in terms of overall adoption. And then we've also been trying to focus on among the companies that are reporting adoption of AI technologies. Is there any sign of them adopting it and then reducing their spend on that technology because it's not working?

And it's hard data to get your hands on, but we're doing our best, and we continue not to see it. It just seems like we're very early in this technological process. But again, we don't have rose-colored glasses. We're really laser-focused on any signs of these kind of adoption curves starting to bend, and we just don't see it yet.

Well, and I would add on the IPO comment, because we have about $4 billion worth of IPOs last week alone. And it seems like every day we're getting-- that's what the news is covering. But that's after a dearth over the past three or four years. Nothing was happening for a very long time. So there was a lot of pent-up demand, which we heard from banks for a very long time, and now it's starting to come to market. So I would also keep the last three or four years in context as well.

Got it. We covered a lot. I'm going to try to wrap it up quickly. And you guys feel free to jump in and correct me if I misstated anything. But I think what I took away from that conversation is that we need to trust risk assets here to do their job in a portfolio, which is to drive capital appreciation over time. We have the Fed in easing mode, which is supportive for risk assets. We have not just the AI CapEx build, but actually the AI revenue generation that's starting to come through.

We can think about diversifying either down market cap into private equity outside of the US if we're looking for opportunities that may be at a lower valuation, but no matter what it is, we have to be trusting risk assets. We want to be stepping out of cash prudently. We want to be picking our spots of where we're going to replace some of that yield that we were enjoying in money market funds.

You said of avoiding the long end of sovereign debt curves, but focusing on places like investment grade credit, preferred equity, municipal bonds all look a little bit more attractive to us. And then finally, when we think through the risks of whether that's a runaway inflation or recession, I think that's where we can use alternative allocations in portfolios to protect against that. So I think about infrastructure, equity-linked structured notes. I think about gold, which is something that we've liked for a while, that is up almost 40% this year, believe it or not, but we continue to it.

But the overall takeaway, at least from my view, is that we can trust assets to do their job in a portfolio, and that should give comfort to a lot of people who are thinking through their long-term investment portfolios. Anything else, Sam?

No. Perfectly summarized.

Thank you very much for the insights, Abby. As always, thank you very much for the insights. And thank you all for spending the time with us. We appreciate it. And if you have any other questions, please do not hesitate to contact your JPMorgan team. Thank you.

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YOUR INVESTMENTS AND POTENTIAL CONFLICTS OF INTEREST. Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, J.P. Morgan) have an actual or perceived economic or other incentive in its management of our clients' portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client's account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client's portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account. Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward-looking views in order to meet the portfolio's investment objective. As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios. The Six Circles Funds are U.S.-registered mutual funds managed by J.P. Morgan and sub-advised by third parties. Although considered internally managed strategies, JPMC does not retain a fee for fund management or other fund services. LEGAL ENTITY, BRAND & REGULATORY INFORMATION. In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC. JPMorgan Chase Bank, N.A. and its offiliates (collectively "JPMCB") offer investment products, which may include bank managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and S.I.P.C.. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPM. Products not available in all states.

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