Investment Strategy

Pushbacks and top tracks: A mid-year mixtape

Since the launch of our 2024 Mid-Year Outlook: A Strong Economy in a Fragile World, we’ve been talking to our clients across the globe.

Along the way, we’ve heard excitement about the year ahead, but also remaining questions. In the spirit of this week’s summer solstice and the kickoff of vacation travels, we’ve curated a “road trip playlist” to answer the top queries, concerns and challenges we’re hearing in regard to our view.

Before we dig in, here’s our view in short. Global growth is proving stronger and more durable than most expected. Despite sticky inflation, high rates and the fragility that comes with geopolitical and election uncertainty, most macro and market variables in developed economies remain solid. Companies are posting stronger profits, labor markets are finding a better balance, and AI is just getting started. We think this backdrop will power stocks higher through the year. Yet if growth stumbles, bonds can provide stability. Investors should feel confident that their asset toolkits can support their long-term goals.

From that view, here are the five questions we’re hearing most, set to the tune of some of our favorite tracks.

Only big names are driving the rally. Is it a bubble?

Track: Don’t Stop Believin’ by Journey

Stocks have been on a rip higher since the market bottomed in October 2022, with the S&P 500 rallying close to 60%! So what’s the worry? If you didn’t hold mega-cap tech stocks, you missed half of it. We are seeing more companies join in this year, but the trend continues: Last week marked the first time on record that the S&P 500 rallied over 1.5%, while its equal-weighted counterpart fell more than half a percent.

That might feel like “a lonely world,” and it’s led many to this question: Is the stock market a bubble? We don’t think so. For one, unprofitable companies haven’t propped up this rally as in other bubble-like times. While a few companies may be driving the bulk of the rally, it’s been supported by underlying, high-quality earnings strength.

Unprofitable companies haven’t propped up this rally

Unprofitable companies in Russell 3000 Index, rolling 12-month total return, %

Source: Bloomberg Finance L.P. Data as of May 31, 2024. The analysis screens for companies in the Russell 3000 Index that have negative earnings per share (EPS), rebalanced monthly, equally weighted.
From here, we think tech stocks can “hold on to that [good] feelin’,” but we also think momentum will broaden. Durable growth, moderate inflation and a shift toward rate cuts should enable other areas of the market to participate. By Q2 next year, all 11 S&P 500 sectors are expected to post profit growth on a year-over-year basis. That’s something we haven’t seen since 2018. Some of our highest conviction is in sectors such as industrials, healthcare and consumer discretionary, alongside high-quality small- and mid-cap companies.
 
In short, “don't stop believin’” in the rally. We see a promising second half ahead.

The AI boom has been loud. Could it go bust?

Track: Everywhere by Fleetwood Mac

AI is “everywhere.” Earlier this week, Nvidia surpassed Microsoft to become the world’s largest company by market cap, now over $3 trillion. For some, this has triggered memories of the dot-com era.

While AI’s rollout will likely face challenges, we think it’s just making its start. Only 5% of U.S. companies are actively using AI today, according to the U.S. Census Bureau. Yet some 50% of the S&P 500 by market cap mentioned AI in their Q1 earnings calls. The flurry of AI investments could quickly generate cost savings and efficiencies, and if historical patterns hold, its economic impact might be felt in half the time it took for the PC and internet.

Many will question AI’s potential, just as with past technologies. In one famous example, Paul Krugman in 1998 (a winner of the Nobel Prize in Economics) predicted that “by 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” The lesson: We think investing in AI requires patience.

Disruptive tech adoption takes time

Hype cycle illustration for new technologies

Source: Gartner. 2023. 

Not all companies will be winners, and some that don’t yet exist will disrupt or replace incumbents. This makes thoughtful exposure, focused on companies that could benefit from increased productivity or revenue (or both), crucial.

Inflation lingers, rates are swinging. Are bonds worth it?

Track: Style by Taylor Swift

Investing in bonds over the past few years has felt like a “long drive with no headlights.” After the “higher for longer” rate reset pushed yields to their highest since the Global Financial Crisis, rate-cut bets and cooler data have brought U.S. Treasuries close to erasing their year-to-date losses. Elevated yields signal that the income and protection power of bonds is back. However, fluctuations, especially with ongoing debates around inflation, government debt and geopolitics, may still cause volatility. Is it worth the hassle?

We’re believers that bonds “never go out of style”; it just matters how you use them. Investing in different pockets of fixed income, across the curve and risk spectrum, has its merits. For instance, as the Federal Reserve eventually joins the rate-cut party, we grow even more skeptical of cash, and short-duration credit can lock in still-elevated yields for longer. Meanwhile, given how far rates have reset, longer-duration bonds now offer meaningful protection in the event of an economic slowdown. For U.S. taxable investors, municipal bonds can be especially powerful tools, offering a potential yield pickup on a tax-advantaged basis.

With the right approach, we think investors can keep a “James Dean daydream look” in their portfolios’ eyes.

Are consumers actually solid? Signs point to slowdown.

Track: I Won’t Back Down by Tom Petty

If you just read the headlines, you might think the consumer is hitting hard times. Tuesday’s U.S. retail sales print was weaker than expected, with ex-auto sales falling -0.1% and the “control group” rising a modest 0.4%. The prior two months also saw downward revisions. Consumer sentiment recently took another hit, and many note rising delinquency rates. Adding to that, Q1’s earnings season saw household names such as Starbucks, McDonald’s and CVS warning of slowing demand amid higher rates and costs.

But a wider lens shows underlying strength. Consumer spending has slowed from its start-of-year clip, but remains solid thanks to income gains. While interest costs have risen, especially for credit cards and auto loans, 70% of American households’ debt is in their homes, and over 90% have fixed-rate mortgages, keeping overall debt burdens low. With 70% equity also in their homes, many Americans have reason to “stand their [spending] ground,” albeit more discerningly. Payment bellwethers such as Visa and American Express signaled the same during the last earnings season.

Consumer spending and income growth remain strong, even if cooling

U.S. household nominal income and spending, year-over-year % change

Sources: Bureau of Economic Analysis, Haver Analytics. Data as of April 30, 2024. Aggregate payroll income represented by growth in aggregate weekly payrolls for total private nonsupervisory roles, seasonally adjusted. Nominal consumer spending represented by Personal Consumption Expenditures. 

In all, the Atlanta Fed’s GDPNow estimate for Q2 is running at a sturdy +3% annualized pace. We don’t think the strong economy is “backing down,” even if it’s slightly cooling.

Are we underestimating the U.S. election impact?

Track: Changes by David Bowie

The year of elections has been busy. Political results in Mexico and India last month shook things up, and snap elections in France recently injected new volatility. The United Kingdom also heads to the polls soon, and U.S. elections are approaching in November.

Debates around the budget, taxes, tariffs and regulation are intense. Historically, economic and earnings fundamentals matter most, with the president having a minor influence on market returns. However, markets particularly sensitive to political outcomes—such as small- and-mid-cap equities, clean and traditional energy, and the U.S. dollar—could see bigger moves alongside the election outcome.

One of the most notable risks we see lies in the likelihood that neither U.S. candidate stands to be fiscally conservative. That could worsen the debt and deficit picture. Just this week, the Congressional Budget Office signaled a higher deficit for both this fiscal year and the next decade. At some point, tax rates are likely headed higher. This makes tax efficiency a crucial part of any investment strategy.

In the end, we don’t think this should disrupt investors’ long-term plans. We believe the economy, markets and investors are well placed to adapt to the “changes,” “turning and facing [any] strain.”

A strong economy in a fragile world

As we enter the second half of 2024, the market presents both challenges and opportunities. Despite “bubble” worries, the stock rally is backed by strong growth and accelerating earnings, and growing AI enthusiasm is everywhere. Bonds have regained appeal with elevated yields.

Don’t stop believin’ in the market’s potential. A plan that’s fine-tuned to your long-term goals never goes out of style, and it can help you prepare for the inevitable changes that come alongside investing.

All market and economic data as of June 2024 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.

Index definitions:

  • The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the largest 3,000 U.S. companies representing approximately 96% of the investable U.S. equity market.
  • The S&P 500 Index or Standard & Poor's 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
  • The S&P 500 Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.


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  • 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.
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  • 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.
  • Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​
  • The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.​
We answer your top questions with the help of our favorite summer tracks.

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