Aug 1, 2025
5 things working in markets today
This week saw a dramatic swing in market sentiment, as investors shifted from the brink of geopolitical chaos to near elation over potential Federal Reserve cuts.
By Saturday, the Israel-Iran conflict had escalated, with U.S. bombers targeting key nuclear sites, raising fears of a global crisis. Yet a ceasefire was announced, and nuclear talks are set to begin, which has eased tensions. Amid this uncertainty, European NATO members pledged to boost defense spending to 5% of GDP, a level not seen since the Cold War.
As geopolitical risks quickly faded, investor focus pivoted to the Fed’s dovish stance. The market now sees the central bank prioritizing the labor market over inflation, hinting at potential rate cuts sooner than expected. Investors embraced this proactive approach, viewing it as accommodating for the economy. Short-term bonds rose, while safe haven assets such as gold and the U.S. dollar declined, and global equities rallied—with the S&P 500 just five basis points shy of all-time highs—on positive momentum.
Spotlight
Investors are in a weird place right now—grappling with uncertainty while markets hover near all-time highs. The economy is fundamentally strong, with corporates enjoying robust revenue and EBITDA growth, low default rates, resilient consumers, a balanced labor market and inflation close to the Fed’s target.
The landscape is shifting, however. Bears caution that the real disruption from tariffs and geopolitical tensions is yet to come. Meanwhile, markets remain fixated on the strong fundamentals. How should we cope with this dual reality? We believe the focus should be on the many aspects that are working right now in markets.
1. A diversified portfolio
To boot, a global 60/40 portfolio is up +7.3% so far this year, showcasing its resilience.
There’s more proof of disinflation occurring: Despite tariff risks, central banks are still maintaining an easing bias, and geopolitical risks are fading.
Within U.S. equities, industrials (+10%), financials (+7%), utilities (+7%) and tech (+7%) have led the charge higher, with the last three being among our preferred sectors. We believe there’s more room to grow.
Bonds have delivered a solid performance halfway through the year, with the U.S. Bloomberg Aggregate up + 3.6% and the Global Bloomberg Aggregate up + 2.6%. When markets were rattled by tariff fears, bonds performed even better.
Even if our base case doesn’t materialize, a diversified portfolio has proven its worth during growth scares. For instance, when the S&P 500 was down 15% year-to-date, a global 60/40 allocation was only down 6%. After all, bonds now offer something we didn’t see pre-pandemic: both the potential for income and hedging for growth scares.
Rising yields have created more attractive entry levels for fixed income investors
Yield, USD, %
Sources: J.P. Morgan Private Bank, Bloomberg Finance L.P. Data as of June 26, 2025. All yields shown above are USD hedged.
2. Regional diversification
Investors worldwide have shifted their focus away from U.S.-centric investing.
While the U.S. market has been buoyed by AI and financials, the broader S&P 500 isn’t expected to see as much earnings growth. In contrast, Europe and China tech are showing breadth and resilience, highlighting their potential for continued growth.
Year-to-date, these regions have also outperformed the United States, with a USD investor up +23% in China and +24% in Europe, compared to just +4.4% in U.S. equities. Although these markets were perceived as more sensitive to tariff and geopolitical risks, recent catalysts have demonstrated their resilience and potential for continued growth.
3. Bank stocks
Deregulation is here. This week, the Fed proposed easing leverage requirements for banks, lowering the supplementary leverage ratio (SLR) from 5% to between 3.5% and 4.5%. This change could allow banks to use their excess capital more effectively.
The ongoing conversation around bank deregulation presents a promising opportunity for the U.S. banking sector. With softer regulations, banks can enhance profitability through increased market activity and reduced regulatory costs.
The financials sector, up about +7% this year, stands to gain further from these changes. To boot, deregulation could enable banks to deploy around $200 billion in excess capital, which we expect will boost the economy through increased buybacks and loan growth. Interestingly, government debt growth has outpaced bank lending since the financial crisis, and we believe this shift will likely accelerate loan and economic growth.
Government debt growth has exceeded bank lending since the Global Financial Crisis
Annual loan change ($) as a share of GDP, %
Sources: Bloomberg Finance L.P., S&P Global Market Intelligence and FRED Economic Data, Data as of March 31, 2025. Bank loans and government debt from 'All Commercial Banks' - an estimated weekly aggregated balance sheet for all commercial banks in the United States.
4. Recent IPOs
Up until recently, IPO activity was blocked at the top of the funnel, but now the dam is starting to burst. Recent high-profile IPOs such as Circle (+598%) and CoreWeave (+295%) have been very successful, signaling a resurgence. In fact, May marked the strongest month for global IPO and M&A activity since May 2022, despite a post–“Liberation Day” slowdown.
Private equity–backed IPOs captured a record 55% of capital raised on major U.S. exchanges. At nearly the halfway mark of the year, IPOs on U.S. exchanges have raised $29.1 billion, up 45% from the same period last year. Notably, AI has seen about $150 billion in deal activity, up from $20 billion last year.
All that being said, two of the year’s five largest IPOs on U.S. exchanges are trading up by a weighted average of about 53%, leaving investors eager for more. As rates decline and deregulation unfolds, we expect this momentum to continue.
U.S.-listed companies deliver outsized returns after IPO
Year-to-date performance of 2025 debuts by exchange region, weighted-average, %
Source: Bloomberg Finance L.P. Data as of June 25, 2025.
5. Long-term themes such as defense
On Tuesday, many major defense stocks experienced a classic “buy the rumor, sell the fact” move after a ceasefire between Iran and Israel went into effect, with Northrop Grumman, RTX and Lockheed Martin all declining over -3%. However, the S&P 500 aerospace & defense sector remains robust, up over 22% year-to-date. Palantir, a defense application software company, leads the S&P 500 with a +93% year-to-date gain.
While the perceived risk of further escalation in the Middle East may be low, we continue to view the defense sector as a strong, long-term trend. This week alone, European NATO members pledged to boost defense spending to 5% of GDP, a level not seen since the Cold War.
This shift in defense spending will extend beyond traditional defense, benefiting areas such as power, infrastructure, supply chains and cybersecurity.
All in all, we’re in a catalyst-heavy period for markets, with tariffs, taxes, geopolitics and more in play. Our focus is on helping investors feel more comfortable in an uncomfortable market.
If you’re still hesitant to invest right now, a phasing-in strategy could help you feel more comfortable. A consistent phasing-in approach has typically outperformed staying in cash and has reduced return variability.
Phasing-in historically meant giving away some returns, but is still better than staying in cash
Multi-asset allocation 3-year annualized performance, all at once vs. phasing in
Source: J.P. Morgan, Bloomberg Finance L.P. Data as of May 7, 2025. Performance analysis began on 12/31/1989, using index returns for an allocation of the S&P 500 Index and Bloomberg U.S. Aggregate Bond Index, rebalanced quarterly. While phasing-in, excess cash is assumed to be invested in 1-3-month T-Bills. Range shown is range of 5th to 95th percentile of observations, and middle line is median observation. 3 Tranches = Cash deployed evenly in 3 consecutive increments, over approximately 2 months. (e.g. 1/3 on Jan 1st, 1/3 on Feb 1st, 1/3 on Mar 1st). 6 Tranches = Cash deployed evenly in 6 consecutive increments, over approximately 5 months. (e.g. 1/6 on Jan 1st, 1/6 on Feb 1st.... until final 1/6 on June 1st). 12 Tranches = Cash deployed evenly in 12 consecutive increments, over approximately 11 months. (e.g. 1/12 on Jan 1st, 1/12 on Feb 1st.... until final 1/12 on Dec 1st). 24 Tranches = Cash deployed evenly in 24 consecutive increments, over approximately 23 months. (e.g. 1/24 on Jan 1st, 1/24 on Feb 1st.... until final 1/24 on Dec 1st in the next year).
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
In a shifting market landscape marked both by uncertainty and near all-time highs, we focus on what’s working.
Federico Cuevas
Global Investment Strategist
Published Jun 27, 2025
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