Investment Strategy
Aug 8, 2025
Slower growth, higher inflation? Not a problem
This week, economic data wasn’t exactly a picture of stability. Yet, markets were largely unbothered. Consider:
1. Tariff-induced price increases are starting to show up in inflation data, with the core Consumer Price Index coming in at 3.1% year-over-year—a 30-basis-point increase since the indicator bottomed in May. The details suggest that the tariff impact isn’t manifesting as a disruptive spike in prices, but rather a more gradual pass-through that we expect will continue in the months ahead.
2. Producer prices jumped 0.9% month-over-month for both headline and core in July. Over half of this broad-based increase was attributable to final demand trade services margins, which surged 2%—reflecting the markup between selling prices and purchase costs, and signaling that firms are exercising strong pricing power. This reinforces our view that inflation pressures will continue to build.
3. Job growth has slowed, and while continuing unemployment claims fell modestly from last week’s level, they remain meaningfully higher than they were in January.
4. Commercial and industrial loan growth (the pace at which banks are lending to businesses for operations, equipment or expansion) topped 4% year-over-year. The pickup suggests that corporates are still willing to invest and look through tariff headwinds, even as surveys show subdued forward intentions for capex.
With all of the data developments taken into account, the S&P 500 still managed to close above 6,400 for the first time ever this week, hitting yet another all-time high as investors focused on secular growth themes and better-than-expected earnings.
It’s the kind of macro backdrop that can make investors feel uneasy—and why, in our Mid-Year Outlook, we noted that this is a time to focus on getting comfortably uncomfortable.
Based on data we see from our platform, clients have adopted the same mindset—looking through near-term noise and positioning for the forces that matter most over the long term. Against this backdrop, three trends stand out.
1. Flows into our in-house, AI-related investment strategies in 2025 have already surpassed full-year 2024 totals. Secular trends are driving the market forward, rewarding those who lean into strength. Overall equity flows are slightly ahead compared to this time last year, with certain sectors making a significant impact. Key drivers include companies at the heart of the AI ecosystem—hardware, software, data infrastructure—delivering above-market earnings growth and raising forward guidance, reinforcing investor belief that AI is not just hype: Its applications are already generating revenue. Looking ahead, AI is set to create a virtuous cycle—higher productivity leads to margin protection and sustained capital spending.
Expensive, not a bubble: Valuations back by earnings growth
Price and earnings, indexed, 100 = January 1, 2025
Sources: Bloomberg Finance L.P., JPMorgan. Data as of August 13, 2025. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
We’ve also seen remarkable traction in private markets, with flows through the Morgan Private Capital platform reflecting growing demand for directs, co-investments and niche fund strategies among the Private Bank’s qualified investors. Client commitments for 2025 have already surpassed those in FY24, with over $2 billion raised as of August 1 across more than 400 unique commitments in funds, co-invests and directs, primarily in technology, defense, AI, pre-IPO secondaries and buyouts.
2. Year-to-date flows into equity-linked structured notes are almost 2x those from the same time last year. Clients who have been hesitant to add equity exposure at all-time highs have turned to structured notes—capturing market participation with built-in protection. On average, these strategies have been issued at a low double-digit yield with buffers on the downside. In today’s higher-rate, higher-volatility environment, they have offered a way to enhance yield, target high-conviction themes and stay invested while managing downside risk.
3. Infrastructure fund flows year-to-date are 1.5x the total flows for all of 2024. In the current environment, infrastructure has emerged as one of the most compelling ways to put capital to work. We’ve expanded our platform’s offering, and it’s been resonating strongly with clients. This isn’t just about having more options available. It reflects investors’ demands for their assets to diversify away from public markets while providing inflation-linked cash flows, and tapping into powerful drivers such as AI’s need for digital infrastructure. With power as the largest infrastructure sector, rising electricity needs and an accelerating capex to improve grid resilience are creating multi-year growth opportunities—supported by long-term contracts and policy tailwinds. The combination of diversification, inflation-linked income and exposure to secular drivers makes it a compelling ballast in portfolios.
Infrastructure can add stability to a 60/40 portfolio
Rolling 1-year return, %
Sources: Bloomberg Finance L.P., MSCI, JPMAM Guide to Alternatives. Data through 3Q24 (latest data available as of May 2025). Global 60/40 reflective of 60% MSCI World, 40% Bloomberg Global Agg. Private infrastructure represented by MSCI Global Private Quarterly Infrastructure Asset Index. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
This same power demand story is playing out in public markets, particularly within the utilities sector. Here, earnings growth is expected to average 8% over the next five years—roughly double the sector’s historical pace—while valuations remain at a notable discount to the S&P 500, showing how certain public market segments are also benefiting from the structural tailwinds shaping the broader infrastructure landscape.
All in, our clients have embraced the mantra of being comfortably uncomfortable—putting capital to work despite a slowing economy and an uneven macro backdrop. Investing—even at all-time highs—has historically led to consistent gains for long-term investors. Markets making new highs tend to make more of them, and investing at these levels has not meaningfully impacted returns. By leaning into opportunities with defined outcomes, structural growth potential and inflation protection, our clients have stayed invested in a way that balances resilience with upside participation.
Investing near “all-time highs” has often led to future gains
S&P 500 Index level with all-time highs, log scale, 1970 - present (LHS) ; Avg. S&P 500 forward return across time periods, 1970 – present (RHS) price
Sources: (Both) Bloomberg Finance L.P., J.P. Morgan. Data as of August 01, 2025. Note RHS: "Investing at all-time highs" represents average of rolling forward returns calculated from each new S&P 500 record high for the subsequent 3-months, 6-months, 12-months, and 24-months intervals. “Investing at not all-time highs” represents the average of rolling forward returns over the same intervals from days in which the S&P 500 was not at a new high.
Important Information
With a slowing economy and uneven macro backdrop, we explore how to put capital to work.
Federico Cuevas
Global Investment Strategist
Published Aug 15, 2025
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