President Precedents

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Logo: JP Morgan. Michael Cembalest is a middle-aged man with short brown hair and glasses. He wears a navy blazer over a white shirt. A small microphone clips to his shirt, and a laptop and a tall bottle sit in front of him. Presentation. Title card: Presidents and Precedents, Part 2. Michael Cembalest, Chairman of Market and Investment Strategy, JP Morgan Asset and Wealth Management, January 2026.

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Who was here last year? A lot of you. Do you remember, last year, I did this presentation on seven presidents historically, and how they tied into what looked like the themes the Trump administration would be pursuing? For better or for worse, I'm going to do an update on that and then get into some issues on generative AI, and private credit, and things like that.

So

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Slide: Coolidge. An older man with short gray hair and a serious expression wears a dark suit, white shirt, and black bow tie. He sits in a chair with a blurred American flag in the background. Text reads Calvin Coolidge 1923-1929 small-government, pro-business policies.

(SPEECH)

to start out, one of the presidents that we talked about last year was Calvin Coolidge, the small government president.

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Slide: Regulations. A chart titled Cumulative number of economically significant rules tracks the number of rules over months of presidency from 0 to 100 on the horizontal axis and up to 500 on the vertical axis. Multiple colored lines represent Biden, Trump, Obama, Clinton, GHW Bush, GW Bush, and Reagan, and most lines rise steadily over time, with Obama’s line climbing the highest by the end and Reagan’s line increasing more gradually than the others. Biden’s line rises sharply in the early months, Trump’s line increases more moderately with a noticeable jump around the Covid marker, and several presidencies cluster closely together through the middle months. A dashed vertical line labeled End of first term appears around month 48 with an arrow and the label Covid nearby. Text at the bottom reads Source: GWU Regulatory Studies Center, July 2025number

(SPEECH)

So the good news on that front is, as expected, the Trump administration has drastically slowed the pace of government regulation.

You can see that little red line there. And I think for our CEO clients, that's probably the number one thing that they mentioned that they were hoping to see is this slowdown in the breakneck pace of regulation that had taken place under some of the prior administration. So that's happening.

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Slide: Smaller government? A bullet point list.

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The problem is, a lot of the other small government stuff hasn't necessarily materialized. DOGE, at this point, really kind of didn't do very much. A lot of the numbers were exaggerated. And the president's been talking about interventions in single family housing, and oil markets, and an interest rate cap on credit cards and things like that. So some of the small government stuff didn't necessarily materialize the way people wanted.

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Slide: Polk. An older man with neatly combed gray hair and a serious expression wears a dark suit with a high white collar and cravat. He sits upright in a chair, and bookshelves and a softly lit interior appear in the background. Text reads James Polk 1845-1849 manifest destiny in the western hemisphere.

(SPEECH)

Then we've got James Polk. And we had him up here in terms of Manifest Destiny in the Western hemisphere. That certainly has been playing out in spades.

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Slide: Is Venezuela about drugs. A stacked bar chart titled Illicit activities as a percent of Venezuela GDP compares 2018, 2020, 2021, and 2022 with percentages up to 25 percent on the vertical axis. Colored segments represent Rhodium and coltan trafficking, Port smuggling, Currency exchange subsidies, Gold smuggling, Drug trafficking, and Gasoline smuggling, and the total height rises from 2018 to a peak in 2021 before declining in 2022. Rhodium and coltan trafficking and gold smuggling make up the largest portions in most years, while gasoline smuggling remains a smaller share and currency exchange subsidies appear only in earlier years. Text at the bottom reads Source: Ecoanalítica, UN Comtrade, UNODD, CCDB, OCDE, OEA, 2024.

(SPEECH)

And the Venezuela thing is puzzling to me in terms of the way the administration is laying it out, because the first, it was about drugs, drug smuggling and stuff.

And so when you look at Venezuela's economy, it is heavily reliant on a cornucopia of illicit activities. But

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A world map highlights China, Canada, the United States, and Mexico with curved arrows crossing the Pacific Ocean. Blue arrows labeled Powder flow from China toward Mexico and the United States, and red arrows labeled Precursors travel from China to North America. Several arrows converge on Mexico and then point north into the United States.

(SPEECH)

the US DEA did a report just a couple of years ago that identified fentanyl flows taking place into the United States. And Venezuela wasn't even mentioned. It was Mexico, it was China, and it was India. So the fentanyl thing doesn't really hold up.

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Slide: Or oil. A scatter plot titled Oil production vs proven reserves compares production in 2024 on the vertical axis with proven reserves on the horizontal axis. Labeled points include the US with high production near 20 million barrels per day and moderate reserves, Saudi Arabia and the Russian Federation with large reserves and production around 10 to 11, and Venezuela with very large reserves near 300 billion barrels but low production. Canada, Iran, Iraq, Kuwait, and the United Arab Emirates cluster in the middle ranges, and several smaller producers appear near the lower left. Text at the bottom reads Source: EI, JPMAM, 2025.

(SPEECH)

Is this about oil? Well, certainly, Venezuela is a fascinating place. It's an oil basket case. As you can see here on the x-axis, that's the amount of oil they have. They have a ton of oil. And the y-axis is how much they produce.

And so certainly when you look at Venezuela, it looks like a place that has potential to generate more oil and generate heavy oil. And

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A stacked bar chart titled US oil production & refining vs Venezuela production compares three categories in millions of barrels per day. The bars for US production and US refinery inputs show large totals dominated by light oil in red, with medium in gold and heavy in blue, while Venezuela normalized pre-Maduro production appears much smaller with a larger share of heavy oil. US refinery inputs exceed US production overall, and Venezuela’s total remains far below both US figures. Text at the bottom reads Source: PDVSA, Petróleo Y Otros Datos Estadísticos, JPMAM, 2025.

(SPEECH)

so this is an interesting chart here because the first one is looking at US production, which is heavily tilted towards light crudes.

The middle bars are US refining capacity. So we have a chunk of that blue heavy refining capacity without any production to match it. And when you look at Venezuelan oil, it's mostly heavy. But I think, to me, when I talk to people in the military, Venezuela's about this.

These

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Slide: Or something else? Venezuela's weapons arsenal: echoes of the Cuban Missile Crisis. A three panel layout features headings that read From Iran, From Russia, and From China above groups of military equipment images. Under From Iran, a drone flies over a runway, several triangular drones fly in formation, and a gray naval vessel sits at sea. Under From Russia, a tank and an armored vehicle sit on land, a fighter jet flies in the sky, and a missile system with vertical launch tubes stands on the ground. Under From China, an amphibious armored vehicle moves through water and a missile launches from a ground platform with flames trailing behind it.

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are-- and I'm surprised the administration hasn't made more comments about this. All of the weapons systems that you're seeing on this page were either sold to or manufactured in Venezuela from Iran, Russia, and China. And around half of those weapons systems would be able to hit us right where we're sitting.

So we'll talk about John Kennedy later. But among the things that Kennedy is given the most credit for is President is handling the Cuban Missile Crisis. I see some parallels here. And I'm surprised the administration hasn't talked about that more.

The

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Slide: Greenland Europe and NATO. A line chart titled US vs European defense spending tracks percent of GDP from 1990 to 2025. The US line starts above 5 percent in the early 1990s, declines toward 3 percent around 2000, rises to nearly 5 percent around 2010, and then falls and levels off slightly above 3 percent in recent years. The NATO ex US line remains lower throughout, hovering near 2 percent in the early 1990s, dipping closer to 1.5 percent for much of the 2000s and 2010s, and rising toward 2 percent by 2025. A dashed line labeled NATO defense spending target since 2006 agreement marks the 2 percent level. Text at the bottom reads Source: World Bank, SIPRI, Federal Reserve, JPMAM, 2024.

(SPEECH)

Greenland thing looks like there's going to be some kind of negotiated settlement. It's a weird time to try to blow up NATO, because yes, there's a lot of frustration about the fact that Europe agreed in 2006 to pay at least 2% or so of GDP on defense.

Now they finally got there. I mean, it took them 15 years. But now that NATO countries are finally paying the freight, it's a weird time for the Trump administration to risk an implosion of NATO over Greenland. But that's where we are.

And

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Slide: Jackson. An older man with swept back gray hair and a serious expression wears a dark coat with a high collar and a black cravat. He faces forward and sits against a warm wooden interior background. Text reads Andrew Jackson 1829-1837 new political order, deep state battles.

(SPEECH)

then in terms of Andrew Jackson, we talked a lot about battles with the judiciary and a political movement.

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Slide: O.B.B.B.A. passage was impressive given narrow house margins. A bar chart titled Partisan House leadership by majority party tracks percent margin from 1910 to 2025. Blue bars labeled Democratic control and red bars labeled Republican control alternate over time, with larger Democratic margins in the 1930s and 1960s and narrower margins in recent decades. Republican margins peak in the 1920s and again in the 2010s, while many recent bars cluster at lower single digit margins. Text at the bottom reads Source: Vote View Roll Call Votes database, New York Times, JPMAM, 2025.

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When you look at the fact that the Republicans had among the smallest margins in the history of the House and were able to pass that tax bill last year, it was politically an impressive thing, irrespective of what you think about the economic impact of that bill.

But

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Slide: But a "new political order" does not look like it's in the cards. A line chart titled Chance of winning House control in 2026 Midterms tracks average betting odds from Nov 2024 to Jan 2026. The blue line labeled Democrat stays mostly between 65 and 80 percent, dips sharply to the mid 50s in late 2025, then rebounds toward the upper 70s. The red line labeled Republican moves inversely, rising into the low 40s during the Democratic dip before falling back into the low 20s by early 2026. Text at the bottom reads Source: Election Betting Odds, January 8, 2026.

(SPEECH)

it doesn't look like this political movement is going to survive the midterms. And here's the latest polling on who's going to control the House. Now, these things can change. But I look back, there has never been a prediction this high that didn't result in a change in the House.

And

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Slide: Midterms can be big momentum shifts. A horizontal bar chart titled The President’s party usually loses House seats shows seat changes in midterm elections from 1914 to 2022. Red bars represent Republican presidents and blue bars represent Democratic presidents, and most bars extend to the left of zero, indicating seat losses for the president’s party. Only a few years show bars extending to the right with labels that read Yes, while many losing years are marked No near the bars. Text at the bottom reads Source: FiveThirtyEight, US House of Representatives, 2025.

(SPEECH)

in the last five elections, we've had enough seats changing in the presidential party to flip control of the House. And I don't think we should be surprised to see that happen this year. And

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Slide: Nothing lasts forever in modern politics. A chart titled Political ideology of US Presidential administrations along a horizontal scale from Most liberal on the left to Most conservative on the right. Blue dots represent Democratic presidents such as FDR, Truman, JFK, LBJ, Carter, Clinton, Obama, and Biden, and red dots represent Republican presidents such as Eisenhower, Nixon, Reagan, Bush, GW Bush, Trump, and Trump 2024, with connecting lines showing shifts between administrations over time. The positions alternate across the ideological spectrum, with recent points placing Biden on the liberal side and Trump 2024 far on the conservative side. Text at the bottom reads Source: Liberal-Conservative scores derived from VoteView Roll Call data on Congressional voting histories, JPMAM, 2025.

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just as a reminder, you guys have seen this chart from me before, the pendulum keeps swinging back and forth on politics. And so I don't think that that's necessarily going to change.

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Slide: Trump and the power of the Executive Branch. A bullet point list.

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Here, from an investments perspective and a markets perspective, here are the things that I'm watching. These are issues that are still before the Supreme Court as it relates to Trump and the power of the executive branch. And the reason that I'm watching this stuff is to the extent that the Court tilts with the administration on some of these, they're going to be able to do more unilateral things that impact markets and some of our investments.

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Slide: Wilson. An older man with neatly combed gray hair and round glasses wears a dark suit, white shirt, and dark tie. He sits upright with a serious expression, and other men in suits sit blurred in the background. Text reads Woodrow Wilson 1913-1921 prewar isolationism.

(SPEECH)

Wilson, we can skip him. Remember, he ran as an isolationist and became an interventionist. I think more of the same here. This

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Slide: Trump foreign policy actions in 2025. A bullet point list. Like Wilson, running on isolationism but not adhering to it in practice, Iran nuclear facilities, Venezuela, Caribbean boat interdictions, Nigeria air strikes, Syria, Iraq, Yemen, Somalia.

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is a short list of US foreign policy interventions that just took place in the first year of the current presidency.

And

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Slide: Nixon. An older man with slicked back dark gray hair and a stern expression wears a dark suit, white shirt, and dark tie. He faces forward against a light interior wall with subtle paneling in the background. Text reads Richard Nixon 1969-1974 enemies lists, vendettas and dreams of energy independence.

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then Nixon, we talked about a few things. But let's focus on the energy independence part of it.

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Slide: Energy independence. An area chart titled US production of crude oil, natural gas and natural gas liquids, Trillions of BTUs per month tracks output from Jan-2024 to Sep-2025 on a vertical scale from 7,000 to 8,200. The filled area fluctuates through 2024, dips sharply around early 2025, and then rises steadily toward 8,000 by late 2025, approaching a dashed line labeled Bessent 3-3-3 target, while another dashed line marks 2024 average production and an arrow notes Trump inauguration. Text at the bottom reads Source: Bloomberg, DOE, JPMAM, October 2025.

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The administration was focused on increasing US fossil fuel output. Bessent talked about a certain target of hydrocarbon increases. And for the most part, they've already reached it.

So they increased hydrocarbon production by about 7%, if you're looking at the combined oil and gas. And they've already reached it. What we didn't necessarily anticipate was a complete reversal in support for anything related to clean energy.

And

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Slide: Some forms of energy don't make the cut. A bar chart titled New vs cancelled clean energy projects tracks capital investment in billions of US dollars from Q1 2018 to Q3 2025. Green bars labeled Newly announced projects rise modestly through 2019 and 2020, surge sharply during the Biden period with several quarters above $20 to $30 billion, and then moderate during Trump 2.0, while red bars labeled Cancelled, paused or closed projects remain small at first but grow larger and more negative into 2024 and 2025. A dashed vertical line separates the Biden and Trump 2.0 periods. Text at the bottom reads Source: Jay Turner Wellesley College, Q4 2025.

(SPEECH)

so this is a chart of clean energy project starts and cancelations. And you can see how things are playing out here. In spite of this, for the first time in several years, renewables have outperformed traditional legacy investments in fossil fuels and pipelines.

And so I think it's a sign that the rest of the world is continuing to march on, slowly but inexorably, to greater decarbonization and electrification. And the United States is somewhat off to the side here. And so the opportunities investing in renewables is still there, because the rest of the world is still moving in that direction with China as the world leader.

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Slide: Eisenhower. An older bald man with a slight smile wears an olive military uniform with medals, ribbons, pilot wings, and shoulder insignia. He stands outdoors with a blurred white building in the background. Text reads Dwight Eisenhower 1953-1961 lower corporate taxes and deportation policies.

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Remember Eisenhower? We talked about Eisenhower in terms of both immigration policy and tax policy. So let's talk about tax policy first. The

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Slide: Tax cuts. A bar chart titled Corporate tax cuts tracks percent of GDP over three years. Blue bars labeled TCJA current policy ex deemed repatriation remain just above 0.5 percent in Years 1 through 3, while gold bars labeled O.B.B.B.A. current policy range from about 0.3 to 0.4 percent and peak in Year 2 before declining in Year 3. The TCJA bars stand higher than the O.B.B.B.A. bars in each year. Text at the bottom reads Source: Piper Sandler, January 2026.

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corporate tax cuts in the bill passed last year are not as big as the ones that were associated with the 2017 tax bill, but they're still material.

And in essence, what they did was they took a lot of the depreciation and other investment accelerated depreciation benefits away from just the green economy where they're being concentrated. And the bill spread them over the broader corporate sector.

And when we talk to people who do forensic work on US companies, they do see a material benefit, both in '26 and '27, from the depreciation characteristics of that bill. And so I think it's important to focus on that.

People

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Slide: Immigration policy. A dual axis line chart titled US border encounters and ICE book-ins to detention tracks data from 2019 to 2026. The blue line labeled Border encounters rises from below 1 million in 2020 to a peak above 4 million in 2024, then drops sharply to well under 1 million by 2025, while the gold line labeled ICE book-ins to detention falls in 2020, gradually increases through 2023 and 2024, and then surges above 400 thousand by 2026. Text at right reads 73.6% of current detainees have no criminal convictions, and text at the bottom reads Source: CBP, ICE, JPMAM, November 2025 and Source: TRAC Syracuse, November 2025.

(SPEECH)

will be talking and writing about this chart in 50 years in the United States. And it may turn out to be one of the most momentous, controversial, and impactful policy decisions that any president and his party have ever made.

And whenever you talk about immigration, you got to show the whole picture. You have to show the steady state that it was for many years, the Biden surge, and then the Trump reaction. And from an investments perspective, we have to focus on growth in the labor force.

And the United States birth rates are a little bit higher than Europe, but not that much. And European birth rates round to 0. So these are some important issues about potential growth and growth in the labor force. And there are some pretty clear trends that the labor force growth in the United States is slowing.

And

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A bar and line chart titled Estimates of the breakeven level of payroll gains vs actual payroll gains tracks monthly data from 2022 to 2025 in thousands. Gold bars labeled Actual payroll gains start high in 2022, trend lower through 2023 and 2024, and include several negative readings in 2025, while a blue line labeled Author’s estimates of breakeven level rises toward about 250 thousand in 2023 and then declines steadily toward near zero by 2025. In earlier periods most bars exceed the breakeven line, but by 2024 and 2025 many bars fall below it. Text at the bottom reads Source: Bloomberg, BLS, Dallas Fed, JPMAM, December 2025.

(SPEECH)

throughout my entire career, whenever we saw low payroll growth, it was a reflection of low demand, low economic demand. This is the first time I can remember that when we see a low payroll report, we have to think, is this because the economy has low demand for labor? Or is this because there's just not enough new supply of labor?

And those are two very different things. And that blue line you see on this chart is an estimate from the Fed about how much labor force growth you would have before you got wage inflation. And when the labor force is growing at a reasonable pace, you clan have 200,000, 300,000 400,000 payrolls added without it being inflationary. Right now, that number is 50.

So right now, the Fed looks like they've got room to cut a couple of times because the inflationary momentum is down rather than up. But from a secular basis, we're heading into a period where we're going to have more upside inflation shocks because unless something changes about the growth in the labor force.

And I think by the end of Trump's term, both parties are going to have to come to some kind of economic recognition that the United States needs people. Now, you can get them in different ways. But the notion that you can rely uniquely and solely on growth in the organic US-born population. I think a lot of Trump supporters don't necessarily believe that.

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Slide: McKinley. An older man with a receding hairline and a thick mustache wears a dark formal coat with a high collar and a small pin at his neck. He sits upright with a stern expression against a softly lit interior background. Text reads William McKinley 1897-1901 tariffs and protectionism.

(SPEECH)

And then the tariff thing is interesting. This was McKinley. I would say, and I'll raise my hand and say that I was one of them, on a scale of 1 to 10 in terms of concern. I was at a 6 or a 7 when a lot of these policies were announced. And here we are, a year later or so, and it's a 2 or a 3.

And I think that some of us missed a couple of things. And this chart is of an interesting depiction of what's happened. So

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Slide: Tariffs: so far, economic impact much lower than expected. A line chart titled US tariff rate estimates, tariff revenues and imported goods selling prices tracks percent changes from Jan-25 to Nov-25. A gold stepped line labeled Yale Budget Lab tariff rate estimate spikes above 25 percent in the spring, then settles near the mid to high teens, while a red stepped line labeled Tariff revenue as % of total imports rises gradually to around 9 to 10 percent. A blue line labeled % change in US selling price of imported goods trends upward more modestly to around 4 to 5 percent, and a gold dot labeled JPMAM tariff rate estimate appears near 12 percent in late 2025. Text at the bottom reads Source: Yale Budget Lab, US Treasury, Census Bureau, Digital Data Design Institute Pricing Lab, JPMAM, December 2025.

(SPEECH)

the gold line is the tariff rate as a percentage of imports as computed. And so that looks like a pretty big freight for the economy to pay.

Well, it turns out that, first of all, some companies produced more domestically and stopped importing. Some shifted their imports to other countries that have lower tariffs. Some kept importing from high tariff countries, but rebranded the goods and nobody caught them because some of the people that policed that were fired by DOGE.

So there were some interesting things that happened as all the things shift around. And the bottom line is when you look at those lower numbers, that's where it's turned out to be. And then US imports are only 11% or so of GDP. So the impact on the actual inflation rate of final goods has been pretty minimal so far.

And

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Slide: This chart may explain why. A horizontal stacked bar chart titled Import composition of US consumption shows the share of US personal consumption expenditures adding to 100 percent. Segments labeled Imported durable goods, Imported nondurable goods, and Imported services make up a smaller portion on the left, while larger segments labeled Domestic durable goods, Domestic nondurable goods, and especially Domestic services dominate the right side, with domestic services forming the largest share. Text at the bottom reads Source: Federal Reserve Bank of San Francisco, JPMAM, 2019.

(SPEECH)

I probably should have been paying more attention to this. So this is a depiction of all of the goods that the United States imports. And the darker bars in each case are the ones that are produced domestically. And just look at the size of that dark red bar, that's the domestic services sector. And the amount of services that are imported is very small. So we probably should have paid a little bit more attention to how these things would percolate into the economy, which so far, has not been that bad.

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Slide: While the AI ecosystem is exempt from new tariffs, the power grid is not. A horizontal bar chart titled Power generation vs semiconductor tariff exclusions shows the percent of 2024 US product imports excluded from Trump tariffs. Red bars for the Semiconductor ecosystem include Computer parts, Computers, and Semiconductors with high exclusion rates near 70 to 90 percent, while gold bars for the Power generation ecosystem such as Gas turbines and jets, Insulated wire and fiber, Motors and generators, Transformers, Electrical switches, Solar Panels, Electric boards and panels, and Batteries show lower and more varied exclusion rates. The semiconductor categories appear more heavily excluded overall than most power generation categories. Text at the bottom reads Source: USITC, White House, JPMAM, 2025.

(SPEECH)

Now, one area that does matter, or I do think there's an impact, is the whole generative AI revolution and the way tariffs play into that. So we built this model that goes across like 12,000 HTC codes of different imported products, and the 200 countries that the US imports from.

And we put in all the rules. And of course, every time Trump makes a tweet, we have to adjust it. And I have a team of people locked in a room with no windows that have to keep adjusting this thing every time there's a social media thing.

But I'm sure you've seen this by now. A lot of times, the president will say, here's a tariff. And it seems high. And it's terrifying, but then his people come out later and clarify, here are all the exemptions. So of that tariff, sometimes, the vast majority of its impact is gutted because they've excluded either certain countries, or certain products, or some combination of both.

So the semiconductor industry has been very successful at convincing the administration to exempt their goods from import tariffs. So the top three bars, the top three bars on this chart are depiction of that. So something like 80% of all of the data center related servers, and motherboards, and chips, and stuff like that are exempt from import tariffs. That's the good news.

The bad news is data centers don't function like office buildings, where you can just build them, and then they serve their economic purpose. They need power. And when you look at the cost of importing that kind of equipment, the exclusions weren't there. So the power industry has not done nearly as good of a job as the semiconductor industry in getting themselves exempt from tariffs.

And the energy paper comes out in a little over a month in the beginning of March. And one of the key issues is I think we're heading into a constraint. There's a wall of power that we're hitting. And some of you may have seen, Microsoft signed a deal with Constellation to restart one of the nuclear power plants at Three Mile Island at the cost of something like $140 a megawatt hour. That's 2 times the rate of normal wholesale power.

And Microsoft is a smart organization. They wouldn't be doing that if they could obtain baseload power some other way more cheaply. So we are heading into a period here where energy availability and generation capacity are now the governing constraints on what happens with AI. And we'll talk about that in more detail.

Ultimately,

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Slide: Ultimately the capital markets will be an important barometer of Trump policies. A four panel layout of charts on US IPO activity, IPO first day returns, US secondaries activity, and total announced M&A volumes. The IPO and secondaries charts show sharp spikes around 2020 to 2021 followed by declines and partial recoveries, while the bar chart of IPO first day returns shows volatile annual results with several tall peaks. The M&A chart displays fluctuating quarterly volumes with periods of stronger deal activity followed by pullbacks.

(SPEECH)

the capital markets are going to be the barometer of how all of these Trump policies collide with each other and how things turn out. And on that front, the news is looking a little brighter when we look at primary IPOs, and secondaries, and block trades related to financial sponsors, and things like that.

And so we're starting to see a little bit of an uptick in capital markets activity. And one of the reasons that I was so excited to see that, and I bet a lot of you guys are excited to see that, is does anybody recognize this chart from the alternatives paper that we wrote in December?

We're

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Slide: which will be important for Alternative Investment managers swimming in a deep pool of unmonetized investments. A line chart titled Waiting for Godot : unmonetized venture and buyout shares tracks the median remaining value as a percent of fund value plus distributions by vintage year from 2010 to 2024. A gold line labeled Venture capital rises steeply from low levels in the early 2010s to near 100 percent by 2023 and 2024, while a blue line labeled Buyout climbs more gradually but also approaches the high 90 percent range in recent years. Both lines show a strong upward trend over time, with venture capital generally above buyout for most vintages. Text at the bottom reads Source: Steve Kaplan U Chicago, MSCI Burgiss, JPMAM, Q2 2025.

(SPEECH)

at an all-time high in venture and private equity in terms of the percentage of capital in these funds that hasn't been monetized yet. So the way to read this chart is let's look at the buyout one. You're looking on the x-axis at the vintage year.

And the dot associated with it is the percentage of-- the percentage of NAV that hasn't been monetized. So you're looking at eight-year-old, nine-year-old funds that still have 40% to 70% of their assets still to be sold.

And so I don't quite understand why the pace of monetization and distributions has been this slow. It was the centerpiece of our alts paper this year. It's up to all of you and the institutional investment community to put pressure on some of these GPs to be willing to sell things below where they're marked, which is really the collision in a lot of circumstances. And hopefully, the improvement in capital markets activity will give them the ability to start doing that.

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Slide: Private Credit: limited signs of distress, which is what we should expect during an economic expansion. A four panel layout of charts on downgrade ratios, default rates, nonperforming loan exposure, and PIK interest share. The downgrade and default charts show spikes around 2020 and again in the early to mid 2020s before easing somewhat, while the nonperforming loan chart shows fluctuations with periods of elevated stress followed by declines. The bar chart on PIK interest share shows relatively high and steady percentages across recent years with only modest changes.

(SPEECH)

The other thing I wanted to mention, there's been more debate about private credit than almost anything else in the alts space over the last 12 to 18 months. When you look at the private credit universe right now, everything looks fine, but as it should. We've all been around and invested long enough to know credit looks great during an economic expansion and looks terrible during a recession.

And one day, I'm going to write a book called The Dumbest Charts I've Ever Seen in the investments industry. And one of them is going to be a chart on high yield credit spreads where some guy draws an average of 600. High yield spreads are never 600. They're 200 or they're 1,000. And if they're 600, they're there for 15 minutes as the spread is either moving up or down based on the business cycle.

And so private credit looks fine today across all of these different statistics, even if you add in selective defaults and things like that, because we're in an economic expansion. And there's plentiful liquidity. And so if you're trying to diagnose how to invest in private credit or what's going to happen to me just based on this, I think you're missing the plot.

What's more important to me are these two charts. This

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Slide: Private credit underwriting was much stricter in 2023 than the broadly syndicated loan market. what about now? A two panel layout compares private credit and broadly syndicated loans on EBITDA restrictions and covenant features. The left bar chart titled Private credit more restrictive than BSLs on EBITDA make-believe shows private credit with tighter caps and fewer loans with no cap, while syndicated loans show a higher share with no cap and looser restrictions. The right horizontal bar chart titled BSL market less protective than private credit on key covenant features shows broadly syndicated loans more frequently allowing features such as inside maturities, conversion of restricted payments into debt, and automatic debt increases, while private credit allows these features less often. Text at the bottom of both panels reads Source: Moody’s Investor Services, October 2023.

(SPEECH)

is really where the rubber hits the road in private credit and how you should really talk to managers and understand what they're doing. These charts were done two years ago. They haven't been updated by the rating agency since.

But this chart on the left and the chart on the right are really important because they get at this question. The broadly syndicated loan market is basically, it's not even underwritten anymore. If you ask a question on a conference call on a broadly syndicated loan, they'll cut you off.

We don't need your capital. If you have a question, you're out. Private credit was always underwritten differently, which is we're not going to allow inside maturities. We're not going to do the same kind of IP blockers that you see in the broadly syndicated loan market.

If you sell an asset, 100% of the proceeds have to pay down the debt. And there's all sorts of different stuff. And then the EBITDA add backs, which is this fictional thing where companies get to assume that they're in compliance with their covenants because they make up an amount of synergies that they're going to earn, is generally not allowed or allowed to a much lower degree in the private credit market.

So this is, two years ago, the private credit industry got very high marks for its underwriting discipline and differences between them and the loan market. The question is, where are they now? And private credit spreads have gone from, let's call it 275 to 175. There's been a huge influx of capital. Basel III doesn't look like it's going to happen.

So therefore, all that money that was raised anticipating that it was going to be a replacement for bank capital, the banks are still lending aggressively to that space. And so I think now is a really good time to be very discerning and very focused on exactly how these positions are being underwritten. And we're really not going to know, until the next real recession, who's doing a good job.

And remember, we haven't really had a recession in the United States since 2008. COVID wasn't the same because of the PPP loans and the other government statistics. If you look at either default rates or credit spreads, they went up around a third to a half of what they do in a normal recession.

So we're now 15 years removed from the last recession, real recession, as it relates to being a credit investor. So you have a lot of people underwriting and investing money, who, during their professional careers, have never seen price drops of 40 points and things like that. So it's a good time to pay a lot more attention to how your managers are doing this.

So

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Slide: JFK, Science is the New Frontier. A middle aged man with neatly combed brown hair and a slight smile wears a dark suit, white shirt, and tie. He faces slightly to the side against a softly lit light background. Text reads John F. Kennedy 1961-1963.

(SPEECH)

let's talk about-- we did not make any parallels between Trump and JFK in last year's presentation. JFK was the science president and talked about science as the new frontier and stuff like that. That's not this.

These

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Slide: Trump: not on the taxpayer's dime. A multi line chart titled Change in agency staff levels from previous year tracks percent changes from 2016 to 2025 for several federal agencies. Most lines fluctuate modestly between small gains and losses through 2024, with a few peaks around 2020 and 2023, before all lines drop sharply into negative territory in 2025, with declines reaching roughly 15 to 25 percent. The legend lists agencies including the Centers for Disease Control and Prevention, National Institutes of Health, NASA, Environmental Protection Agency, and others. Text at the bottom reads Source: Nature, January 22, 2026.

(SPEECH)

are the staffing cuts that all the different science agencies affiliated with the United States government. And the administration's position is we're all in favor of scientific R&D, but not on the taxpayers' dime.

The problem is that's nice in theory to say we want the private sector to carry the load, but something like 90% of all FDA drugs, at some point, had some kind of NIH support and involvement. So the reality is you need these agencies as complements and supporters to the private sector. And these are some pretty disturbing trends.

Now, what is happening on basically private sector only basis is this. And

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Slide: Generative AI is at the frontier of growth and productivity. A bar chart titled 2025 tech capex vs major US infrastructure projects compares peak annual project percent of GDP. A tall black bar for Tech capital spending 2025 reaches just under 2 percent, while a stacked bar for Major public works combines segments labeled Manhattan Project 1944, Electricity 1949, Apollo Project 1964, and Interstate highway 1966 to a total slightly above 2 percent. The stacked public works bar slightly exceeds the tech spending bar at its peak. Text at the bottom reads Source: Manhattan District History, BEA, Planetary Society, Eno Center for Transportation, JPMAM, 2025.

(SPEECH)

I'm lumping this under kind of broad scientific advancement for the reasons you might imagine. And this is kind of amazing. So the black bar on the left is tech capital spending.

And relative to GDP, it's the same size as the moon landing, the interstate highway system, and a couple of other major capital projects of the 20th century. So the investments are huge. And the stakes are quite high in terms of how this turns out in terms of productivity gains, and impact on profits, and things like that.

And for those of you that read the outlook this year, 80% of the outlook was all about who's using it, and what are the impacts on revenues, what are the impacts on labor costs, what are the impacts on productivity, what are the power constraints, and things like that? And here's another look.

We

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Slide: New heights. A line chart titled Private fixed investment in information processing equipment & software as a share of potential GDP tracks percentages from 1995 to 2025. The line rises sharply in the late 1990s to a peak above 4.5 percent around 2000, falls steeply in the early 2000s, then trends gradually upward through the 2010s and early 2020s to reach a new high near 4.6 percent by 2025. Text at the bottom reads Source: BEA, CBO, JPMAM, Q3 2025.

(SPEECH)

have now surpassed dotcom bubble in terms of tech and software spending to GDP. Now, the big difference is for those of you that were in the industry back then, the last one was like the pets.com thing. None of the companies had profits.

That's very different this time around, a basket of 42 companies directly or indirectly involved with AI represent something like 75% or 70% of all of the profits, capital spending, and revenues in the S&P 500 since ChatGPT was launched in November 2022. So

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Slide: Smothering Heights. A bar chart titled Contributions to the S&P 500 from 42 AI stocks since Q4 2022 shows three tall bars measured in percent. The Price return bar reaches the high 70 percent range, Earnings growth stands in the mid 60 percent range, and Capex and R&D growth sits around 70 percent. All three bars indicate that AI stocks account for a large share of overall gains and growth. Text at the bottom reads Source: Bloomberg, JPMAM, January 5, 2026.

(SPEECH)

this is an extremely profitable revolution relative to its unprofitable counterpart back in the year 2000. So that's the good news.

Some of the pictures associated with this are kind of staggering, which is if you look at the amount of capital spending in R&D as a percentage of revenues of the hyperscalers, we've never seen these kind of numbers before. I've never seen numbers like this before in the history of forensic work on income statements, and balance sheets, and stuff like that.

And

(DESCRIPTION)

Slide: Another kind of science experiment. A line chart titled Hyperscaler capex and R&D as a share of revenues tracks percent from 2017 to 2025 for Meta, Alphabet, Amazon, Microsoft, and the S&P 500 median. Meta’s green line rises sharply above 60 percent around 2023, falls, and then climbs again near the mid 60 percent range by 2025, while Alphabet, Amazon, and Microsoft trend upward more gradually into the 30 to high 30 percent range. A dashed black line for the S&P 500 median remains much lower, hovering near 10 to 12 percent throughout. Text at the bottom reads Source: Bloomberg, JPMAM, Q3 2025.

(SPEECH)

you can see here that the average S&P company invests 10% or so. And Meta's latest number was close to 70%. So these are some really unprecedented experiments taking place in terms of just how much of your revenue you can plowback into this kind of stuff.

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Slide: They can afford it so far. A line chart titled Hyperscaler free cash flow margins net of capex tracks trailing 12 month margins from 2021 to 2026 for Meta, Microsoft, Alphabet, Amazon, and the S&P 500 median. Microsoft and Meta remain the highest for most of the period in the mid 20 to mid 30 percent range, with Meta dipping sharply in 2023 before recovering, while Alphabet trends lower into the high teens and Amazon moves from negative territory in 2022 to low single digits by 2025. A dashed line for the S&P 500 median stays near 10 to 12 percent throughout. Text at the bottom reads Source: Bloomberg, JPMAM, Q3 2025.

(SPEECH)

And so far, these companies can afford it. They are extremely profitable. The free cash flow margins of most of these companies are extremely high relative to the S&P. So for all the people talking about a bubble, and they're concerned about what's going to happen, I don't see a slowdown in the breakneck pace of AI-related spending happening this year, because these companies can afford to keep going and have announced every intention to keep doing it.

(DESCRIPTION)

Slide: AI Boom mostly self-financed. A dual axis line chart titled Capex financing vs capex cycle tracks US tech and communications companies from 1996 to 2026. A blue line labeled Capex to sales spikes above 14 percent around 2000, declines in the mid 2000s, then rises again to near 10 percent by 2026, while a gold line labeled Share of capex + dividends financed with debt peaks above 40 percent around 2001 and then trends lower with intermittent bumps in the 2010s and early 2020s. The chart shows high debt financing during the early 2000s capex surge and more moderate debt reliance in recent years despite rising capex. Text at the bottom reads Source: Bloomberg, JPMAM, September 2025.

(SPEECH)

What's a little-- an important distinction, again, versus last time is one of the consequences of the fact that there were no profits last time is every time the capital spending levels went up, the debt went up.

So this chart looks at those two variables. The blue one is the capital spending relative to sales. And the gold one is the share of all your capital spending and dividends that you're financing rather than paying out of operating cash flow.

So last time, in the year 2000, they both went up together. Look at the end of the chart this time. The capital spending numbers are going up, which is the blue line. But there's not that much happening on the debt side.

So this is a very different, self-financed technology revolution that we're seeing this time around. Here's the "but." All of a sudden, in the fourth quarter, a lot of you probably noticed this, in the fourth quarter of 2025, there was an explosion of data center financing that took place.

I

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Slide: Even after Q4 2025. A bar chart titled Annual change in hyperscaler long term debt bonds, loans and leases tracks US dollars in billions from 2015 to 2025. Bars remain moderate from 2015 through 2024, generally ranging from about 10 to 50 billion, before a very large stacked bar in 2025 rises close to 200 billion with segments labeled Amazon Q4, Meta Q4, Google Q4, and Oracle Q4 and a base marked Q1–Q3. The 2025 total stands far above prior years. Text at the bottom reads Source: Bloomberg, Company sources, JPMAM, 2025.

(SPEECH)

was highly critical of the accounting treatment that Meta used on its Blue Owl partnership, because they're basically paying an extra 100 basis points for the fiction of keeping a capital lease off balance sheet. But that's fine. That's their decision to make.

And it looked like there's a seismic shift taking place, where a lot of these data center investments are going to be financed. But when you look at the big picture, it's not nearly as bad. Here are the most important technology companies in our AI basket.

And

(DESCRIPTION)

Slide: Except Oracle. A bar chart titled Net debt to EBITDA ratios of Direct AI stocks shows multiples as of Q3 2025 and Q4 2025 for companies including Palantir, Tesla, NVIDIA, Microsoft, Amazon, Google, Meta, Broadcom, AMD, ASML, and TSMC. Most companies cluster near zero to 2x, while a few such as AMD, ASML, and TSMC display higher ratios, with one bar reaching around 7x. The Q4 2025 bars appear in gold and the Q3 2025 bars in blue for comparison. Text at the bottom reads Source: Bloomberg, JPMAM, January 6, 2026.

(SPEECH)

first of all, most of them don't have a bar on this chart because their net debt to EBITDA ratio is negative, which means they actually have more cash and short-term investments than they have debt outstanding.

And the only-- and while Meta did take on a lot of debt last year, their debt ratio before that was zero. So they are still miles away from what the rating agencies have cited as the trigger point for some kind of downgrade.

The only real thing that happened, if you look at this chart, is Oracle. So Oracle spent the prior decade with Ellison buying back tons of stock. The company's now undercapitalized. And then when they went to borrow some money, their credit spreads went up by about 100 basis points. And the stock fell 35% because they're just kind of not positioned to now start borrowing more to build data centers.

But Oracle, as you can see from this chart, is more the exception than the rule.

(DESCRIPTION)

Slide: You can't spell gen AI without "gen": thinking about power generation. A stacked bar chart titled Data center power demand from announced OpenAI partnerships, GW shows total demand reaching about 30 gigawatts. The largest segment at the bottom is labeled NVIDIA, followed by Broadcom, AMD, and Oracle stacked above it in progressively smaller portions. The combined height of all segments represents the total projected power demand. Text at the bottom reads Source: OpenAI, 2025.

(SPEECH)

And we'll talk about this more in the energy piece. But these are some amazing numbers, right? And sometimes, energy numbers don't mean that much until you try to put it into context.

These are for AI partnerships. Altman needs gigawatts of power by 2030. OK, how much is 30 gigawatts? Well, 1 gigawatt is a large nuclear power plant, like the one that was shut down in California or Indian Point that Cuomo shut down in New York.

They take a long time to build. And you can build gas turbines. But as we'll discuss, there's kind of a shortage of turbines. There's a lot of power that they need. And to put it in context, this is the rolling five year production of nuclear additions in the United States.

So

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Slide: How much is 30 GW? A line chart titled US nuclear plants built by year of completion shows gigawatts on a 5 year rolling sum from 1960 to 2030. The line rises sharply in the 1970s to peaks near 35 to 40 GW, falls steeply in the 1980s and 1990s, and remains near zero for much of the 2000s and 2010s with only small upticks in the 2020s. A gold dot labeled 30.5 GW of announced OpenAI partnerships appears around 2025. Text at the bottom reads Source: Power Reactor System Database, JPMAM, September 2025.

(SPEECH)

even during the golden years of peak nuclear build out, over five years, 30 gigawatts was about as good as it got for the whole country. And now, you've got one company saying they need the same amount of power. That's a lot of power.

And

(DESCRIPTION)

Slide: The picture looks different after adjusting for intermittency and reliability. A line chart titled US electricity generation and storage capacity additions tracks annual gigawatts from 1950 to 2025. A blue line labeled Nameplate capacity and a gold line labeled Nameplate capacity adjusted for intermittency and reliability move closely together, with peaks in the 1970s, a sharp spike around the early 2000s, and a strong surge after 2020 that pushes the blue line above 60 gigawatts by 2025. The adjusted gold line remains consistently lower than the blue line, especially in recent years as additions accelerate. Text at the bottom reads Source: EIA, PJM, MISO, ERCOT, CAISO, Thundersaid Energy, 2025.

(SPEECH)

whoops, does this go backwards? Yes. So some clients have reached out to me and said, well, 30 gigawatts isn't that much. The United States added 70 gigawatts of power last year. And on paper, that's true. But a gigawatt of power is not a gigawatt of power, I mean, in terms of where does it come from?

A gigawatt of gas turbines is not the same as gigawatt of solar. So what I did was I took the blue time series, which comes from the EIA, on the amount of power that was added this year. And I adjusted it for intermittency and reliability. All of a sudden, the numbers come down a lot.

And as you can see, for most of the history of those two series, the numbers are the same. But when the renewable buildout starts happening a few years ago, all of a sudden, these lines are diverging. So 30 gigawatts is a lot of power.

And

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Slide: Gas turbine demand vs supply. A bar chart titled Global gas turbine orders tracks gigawatts from 2001 through projected years into the late 2020s. Blue bars show historical orders fluctuating mostly between about 30 and 80 gigawatts, with a dashed line marking a current production limit near 60 gigawatts, while gold bars labeled Projected rise sharply above that limit to near 100 gigawatts before easing slightly. The projected orders exceed the production limit for several consecutive years. Text at the bottom reads Source: Bloomberg News, October 2, 2025.

(SPEECH)

as you might expect, after the Lucy-- remember, Lucy? How she took the football away and Charlie Brown falls on his back? That's happened twice to the natural gas industry over the last 20 years. So that's why the CEOs of the gas turbine companies are saying, we're not doing any kind of major expansion to double our production capacity, because we've seen this movie before. We're just going to sit here and earn really fat margins on the demand that we've got. So the demand for turbines is way outstripping the ability to build them.

(DESCRIPTION)

Slide: Data center backlash. A stacked bar chart titled Data center power rates vs cost of new generation compares US dollars per megawatt hour across four utilities. Each bar splits into blue Base electricity cost and gold Specialized data center tariffs, with Florida Power and Light and Xcel MN showing higher total rates, Entergy MS showing a large blue base component, and Dominion VA showing the lowest combined total. Dotted lines labeled Solar + storage and Combined cycle gas turbine appear above the bars as reference cost levels. Text at the bottom reads Source: Wood Mackenzie, Lazard, JPMAM, 2025.

(SPEECH)

And there's a data center backlash taking place. Because even when you add the special tariffs that data centers have to pay, and here's just four examples of some of the largest utilities in the country, even when you add in the special tariffs data centers have to pay, they're still below the cost of new generation.

So the data center backlash is growing. And you've probably seen some news out of PJM and the White House recently, where they're basically saying the hyperscalers and the other data centers and large load users, you have to pay for all of your generation and transmission that you're adding to the grid. And you can't just kind of plop in and start drawing power. And so that's going to get complicated as well.

(DESCRIPTION)

Slide: China still relies on the West. A stacked bar chart titled Origin of chips used to train Chinese LLMs tracks the number of models from 2017 to 2025. Blue segments labeled Western dominate most years and rise sharply to a peak in 2024, while small green Combination and red Chinese segments appear in later years, especially 2023 to 2025. The total number of models increases over time, peaks around 2024, and then drops noticeably in 2025. Text at the bottom reads Source: EpochAI, July 2025.

(SPEECH)

Let me just wrap up with a few comments. China's still highly, highly reliant on the West for its own chips. And this looks, over time, at the percentage of language models in China and the chips that they rely on. And they still rely on the West.

China

(DESCRIPTION)

A stacked bar chart titled Semiconductor production capacity shows millions of 200 mm equivalent wafer starts per month across process nodes from 7nm or less to greater than 130nm. Blue segments labeled US and its allies Japan, Taiwan, Korea dominate most categories, while red segments for China and gold segments for Other grow larger at mature nodes, especially above 130nm. Total capacity is highest in the greater than 130nm category and lower at the most advanced nodes. Text at the bottom reads Source: Bernstein Societe Generale Group, November 2025.

(SPEECH)

has production capacity in semiconductors. But it's the kind of chips that are in flashlights in your car, your refrigerators, and those kind of devices. If you look at the two bars on the left, which are the smallest nodes that are used in CPUs, and GPUs, and global positioning systems, China doesn't really make those chips. But they are moving in that direction.

And

(DESCRIPTION)

Slide: The price you pay: energy efficiency. A two panel bar chart compares Huawei and NVIDIA chips. The left chart titled Number of chips shows a tall red bar for Huawei SuperPod 950, Ascend 950 DT 2026 at 8,192 chips and a much smaller blue bar for NVIDIA NVL144, Rubin GPU 2026 at 144 chips. The right chart titled Watts of power per one trillion computations shows Huawei at about 1.19 watts and NVIDIA at about 0.19 watts. Text at the bottom cites Huawei press releases, Gavekal Technologies, SemiAnalysis, The WhiteBox consulting, and JPMAM, December 2025.

(SPEECH)

the chart on the left here is China's solution to the fact that their chips aren't as good as NVIDIA's is they'll say, fine, we'll string 8,000 of them together. That's what they're doing. Whereas, and these are the 2026 vintages for both Huawei and for NVIDIA, the NVIDIA one's going to have 144 chips. And the Huawei one's going to have over 8,000.

Now, that has certain amounts of inefficiencies that result from the optical network and the other stuff. you have to make it all work. And that's what leads you to the chart on the right. So for those two systems, consider yourself as a consumer, and some broker comes to you and says, I have two different data centers for you. One uses six times more power than the other one. Which one do you want?

So most Western buyers are going to pick the NVIDIA solution. And the units involved here are watts per flop of computations. But the issue is China now has, for its own companies and for itself, the ability to survive without Huawei-- I'm sorry, without TSMC and without ASML, and maybe without Taiwan.

And that's a really big issue. Because if China gets to the point where their reliance on Taiwan goes down a lot, it raises the stakes for this, which is, any way you cut it, Taiwan is basically the most blockadeable country in the world.

Because

(DESCRIPTION)

Slide: Taiwan: one of the most blockade sensitive countries in the world. A vertical bar chart titled Net imports of fossil fuels as a share of primary energy consumption shows percentages up to 100 percent for various economies. Singapore and China Hong Kong SAR appear at the top near 100 percent, followed by Taiwan, Morocco, Cyprus, the Philippines, and others in the 70 to 90 percent range, with Croatia near 70 percent at the lower end of the list. Most countries shown rely heavily on net fossil fuel imports as a large share of primary energy consumption. Text at the bottom reads Source: Energy Institute, JPMAM, 2025.

(SPEECH)

when you look at the percentage of energy that they import versus produce domestically, other than a couple of small island places, they're at the top of the list. And they are the only non-Middle Eastern country that show up in the top 10 list of food import dependency as well.

So

(DESCRIPTION)

A vertical bar chart titled Value of food imports as a % of domestic food supply shows percentages for countries with at least $50 bn in GDP. Qatar stands highest near 95 percent, followed by Hong Kong, Kuwait, and the United Arab Emirates in the 75 to 90 percent range, while Taiwan appears highlighted around 60 percent alongside Libya and Israel slightly below that level. The chart indicates heavy reliance on food imports among the listed countries. Text at the bottom reads Source: UN FAO, 2025.

(SPEECH)

I don't want to use the word "trivial," but it would be almost a trivial exercise for China to blockade Taiwan. I don't when they do it. I don't know why they would do it, but we have to pay attention to this, particularly since these are the percentages of all Chinese military assets now located in the Taiwan Strait.

So

(DESCRIPTION)

Slide: Taiwan: the unknown timeline. A vertical bar chart titled Share of Chinese military assets deployed in the Taiwan Strait shows percentages for surface vessels, submarines, and air force assets. Surface vessels such as amphibious assault ships and coastal patrol ships appear near 100 percent, while categories like frigates, destroyers, and cruisers range lower around 50 to 75 percent. Submarines include nuclear ballistic subs at 100 percent and attack subs around 65 percent, and air force assets such as special mission aircraft, bombers, fighters, and transport range from roughly 5 percent to about 60 percent. Text at the bottom reads Source: CSIS, DOD, September 2025.

(SPEECH)

they appeared to be gearing up for something. And I think, as investors, we all need to be aware of that. OK, let me just wrap up here.

Reagan

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Slide: US exceptionalism: "the city on a hill".Ronald Reagan has neatly combed gray hair and a warm smile. He wears a dark suit, white shirt, and patterned tie. He stands outdoors with green foliage and soft sunlight in the background.

(SPEECH)

is most oftenly associated-- most often associated with US exceptionalism and things like that. And

(DESCRIPTION)

Slide: US finally underperformed in 2025. A vertical bar chart titled 2025 ytd total returns for major equity markets shows percent US dollar returns up to 100 percent. Korea stands highest near 95 percent, followed by Latin America around the mid 50 percent range, with the Eurozone, Canada, Taiwan, and Japan in the 20 to 40 percent range, while US Large Cap, US Small Cap, and India appear near the bottom with low single digit gains. Text at the bottom reads Source: Bloomberg, JPMAM, December 27, 2025.

(SPEECH)

so last year, for the first time in a really long time, US underperformed just about every place else other than India.

So a lot of people were kind of shocked at what happened last year, based on the amount of underperformance of US equities versus the rest of the world. But that came at the end of a very long decline in international equities.

And this chart, because I lived it, this chart was like that clip of Homer Simpson falling down a hill. And then he hits a tree. And then he goes into a ravine. And then he gets hit by a bus. And he goes oh the whole time down.

And

(DESCRIPTION)

Slide: Turns out rock bottom was a 40% P/E discount. A line chart titled Non-US P/E discount vs US tracks the MSCI World ex-US forward P/E divided by US forward P/E from 2005 to 2025. The line starts above 100 percent in the mid 2000s, trends downward over time with brief rebounds around 2009 and 2021, and falls to around 65 to 70 percent by 2025, well below a dashed parity line at 100 percent. The chart shows a widening valuation discount of non-US equities relative to US equities over the period.

(SPEECH)

this is the PE discount for non-US equities versus the US. So it turns out, it looks like the bottom was a 40% PE discount for non-US equities. The reason I'm raising this is it has made-- this has been my position in terms of asset allocation, it has made sense to ignore these lower valuations because they just kept falling.

And I want to show you this chart. So the red bar is how much money you would have made by just never switching. You had a US equity overweight the whole time. The

(DESCRIPTION)

Slide: A war chest approach overweighting the US was an enormous success. A vertical bar chart titled Investors reaped large gains by sticking with US stocks shows cumulative total returns from January 2009 to December 2025. Blue bars rise steadily from around 250 percent for early switch years to nearly 950 percent by 2025, while a red vertical bar labeled S&P 500, no switching highlights the strategy of staying fully invested in US stocks. An annotation states that 2025 was the first year in the last 15 when switching from the S&P 500 to the MSCI World ex-US index would have produced higher cumulative returns. Text at the bottom reads Source: Bloomberg, JPMAM, December 24, 2025.

(SPEECH)

blue bars would be I owned US equities and then switched in the year of that bar because I was tempted by a 20% discount, or a 25% discount, or a 30% discount.

The only bar on this chart that's higher than the red one is if you held a US overweight the whole time and switched at the beginning of last year, right? So if you did that, congrats. That was an amazing timing. But I just want to remind everybody, if you didn't do that and you stayed with the US overweight, you are way ahead of anybody that switched along the way.

Now, where do we go from here? It looks like there's still something like a 30%, 35% PE discount for non-US equities. I don't consider the target parity. Because on almost every sector, and in almost every country, the US has higher return on assets and higher return on equity than non-US counterparts.

So

(DESCRIPTION)

Slide: I think a 20% MSCI World ex-US P/E discount would be as good as it gets. Two side by side tables compare Return on Assets and Return on Equity across regions and sectors. The left table titled Return on Assets: Higher in the US lists the US with higher values across most sectors including Technology and Communication Services compared with Europe, Japan, and China. The right table titled Return on Equity: Higher in the US shows the US leading again in most sectors, with especially high figures in Technology and Consumer Discretionary relative to other regions. Text at the bottom reads Source: Bloomberg, JPMAM, December 17, 2025.

(SPEECH)

I'd be surprised if we even got to a 20% discount. And I think that would be as good as it gets for international equities relative to the US. Almost every single number, I think one healthcare number on this page, the US is not in first place, but the US is ahead in terms of profitability in every other box on the page. So those are the end of my prepared remarks. I've hit my timing point like a gymnast. And it was great to see everybody. Have a great day. Thank you for coming.

(DESCRIPTION)

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For J.P. Morgan Wealth Management Clients: Purpose of this material: This material is for informational purposes only. The views, opinions, estimates, and strategies expressed herein constitute Michael Cembalest’s judgment based on current market conditions, and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research, and should not be treated as such. J.P. Morgan is committed to making our products and services accessible to meet the financial services needs of all our clients. If you are a person with a disability and need additional support, please contact your J.P. Morgan representative or email us at accessibility.support@jpmorgan.com for assistance. J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA, and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states. This material is intended for your personal use, and should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. If you have any questions, or no longer wish to receive these communications, please contact your J.P. Morgan representative.

LEGAL ENTITY, BRAND & REGULATORY INFORMATION, The views, opinions, and estimates expressed herein constitute Michael Cembalest’s judgment based on current market conditions, and are subject to change without notice. Information herein may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research, and should not be treated as such. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction where this is not permitted. Any forecasts, figures, opinions, or investment techniques and strategies are for information purposes only, based on certain assumptions, and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given, and no liability is accepted. This material does not contain sufficient information to support an investment decision, and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, investors should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications, and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions, and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Non-affiliated entities mentioned are for informational purposes only, and should not be construed as an endorsement or sponsorship of J.P. Morgan Chase & Co. or its affiliates. J.P. Morgan Wealth Management is the brand for the wealth management business of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan Institutional Investments, Inc. • For J.P. Morgan Private Bank Clients: Please read the Legal Disclaimer. • For J.P. Morgan Asset Management Clients: Please read the Legal Disclaimer. • For J.P. Morgan Wealth Management Clients: Please read the Legal Disclaimer. • For Chase Private Clients: Please read the Legal Disclaimer. © 2026 JPMorgan Chase & Co. All rights reserved.