With higher rates, new opportunities across asset classes

Markets are adjusting to a new reality: borrowing is more expensive. Yet economic growth and corporate earnings are acting resilient — and can offer opportunities for capital to be deployed across equities, fixed income and alternatives.

Moreover, with thoughtful implementation, the investment ideas outlined below may also be put into practice with an eye toward tax efficiency. Your J.P. Morgan team can help evaluate what’s appropriate for your circumstances and financial objectives.

Equities: Earnings remain the anchor

Higher interest rates may have created headwinds for equity valuations, yet stocks have remained resilient as corporate earnings continue to grow. Our view is earnings—not valuations—are likely to remain the key driver of returns over the coming year, with growth moderating rather than contracting. We see this as a constructive backdrop for equity markets, particularly in these themes:

• Heavy assets with low obsolescence (HALO) are at the center of the next wave of capital spending. Demand driven by artificial intelligence (AI) appears to be extending beyond software and into the physical economy. This is supporting investment across hyper-scalers, computing infrastructure, power generation, grid modernization, automation and domestic manufacturing
• Industrials, utilities and select technology-related industries such as cyber security appear well positioned to benefit from a combination of secular tailwinds and improving cyclical fundamentals.

Tax-aware implementation: Carefully time gains realization

Two things to keep in mind about equity investments: Returns generally come from price appreciation, and such gains typically are not taxed until an investment is sold.

Thus, before buying or selling an equity position, it can be beneficial to weigh the tax-efficiency of various scenarios, for example:

• Hold appreciated positions long enough to qualify for long-term capital gains treatment, and use tax-lot selection (choosing which specific shares to sell to control the gain or loss realized) when rebalancing or raising cash

For broad equity exposure in a taxable account, ETFs have historically often been a tax-efficient option for diversified market access, while allowing investors to choose when to realize gains by selling shares. Direct indexing can add tax-management flexibility by holding individual securities, which may create opportunities to harvest losses in some holdings—even in a rising market—and potentially use them to offset and defer capital gains, subject to tax rules. Consider existing tax lots and embedded gains, gains available to offset, fees and trading costs, wash-sale constraints, and tolerance for tracking error before implementing.

Caveat: Tax considerations alone should not dictate portfolio decisions. Holding an unsuitable or overly concentrated position simply to defer taxes can introduce unnecessary investment risk.

Fixed income: Can act as a buffer against market volatility

For much of the past decade, low yields limited the appeal of bonds. With yields now elevated, high-quality fixed income offers more attractive income and return potential than in the low-yield environment, which can make a compelling entry point for long-term investors. Today, the opportunity is less about timing the exact peak in yields and more about the combination of attractive income, improved return potential and diversification benefits.

Higher starting yields provide a meaningful cushion against market volatility, while helping investors generate more predictable portfolio income—an attribute that may be particularly valuable given the wide range of economic outcomes markets are currently pricing.

We see attractive opportunities in: 

• Municipal bonds, which can offer compelling value in taxable accounts 
• Select investment-grade corporate debt, which combines attractive yields with healthy underlying fundamentals, such as broadly solid balance sheets, manageable leverage and relatively stable credit spreads (despite market volatility)

Tax-aware implementation: Focus on after‑tax yield

Taxes may materially change how investors view fixed income investments because coupon income is generally taxed each year, regardless of whether it is spent or reinvested. Here’s what to keep in mind:

• Corporate bond interest is typically taxed as ordinary income, while income from municipal bonds may be federally tax-exempt and, in some cases, be free of state taxes as well. Treasury securities occupy a middle ground: Interest is typically subject to federal taxation but generally exempt from state and local tax levies
• When evaluating fixed income investment opportunities, it is best to assess their after-tax yield and expected total return, while keeping credit quality, duration, liquidity and other risk characteristics in perspective
• Asset location can also play an important role. For example, taxable bonds are often natural candidates for tax-deferred accounts. Eligible investors might also explore certain insurance-based structures, such as annuities, designed to improve long-term, after-tax outcomes

Caveat: The right strategy depends on an investor's tax situation, liquidity needs, time horizon and available account capacity.

Alternatives: For approved clients,

we see opportunities for to diversify into private markets with strategic allocations to:

• Private credit: For some investors, this asset class may serve as an alternative source of income. For example, corporate direct lending might anchor an allocation, with asset-backed finance, secondaries and opportunistic/distressed strategies serving as complements that can: diversify the collateral pool; add counter-cyclical exposure; and benefit from today's market dislocations
• Core infrastructure: Investments in this sector can deliver stable, contractual, inflation-resilient cash flows alongside exposure to multi-year secular trends. Power generation is a defining theme, as U.S. power demand is expected to enjoy ~2.5% compound annual growth rate (CAGR) through 2030 (Source: Bank of America Research, as of July 2025) driven by data centers, electrification and industrial reshoring. We also see appeal in transmission and grid, natural gas midstream and liquified natural gas (LNG), select transportation and logistics, and digital infrastructure with contracted tenants and durable cash flows
• Real estate: U.S. commercial real estate appears to be in the early stages of a recovery, following a significant repricing. Among the opportunities we see: rental housing; logistics; high-quality office assets in supply-constrained markets; and select retail formats, such as grocery and shadow-anchored (i.e., one that draws customer traffic to a retail center without being a tenant of that center)

Tax-aware implementation: Look beyond pre-tax returns 

Alternative investments have diverse tax profiles:

• Some strategies generate ordinary income or short-term gains that may be taxed at higher rates; others derive more of their return from long-term appreciation or return of capital distributions. As a result, tax considerations should be evaluated alongside the underlying investment opportunity rather than in isolation
• Certain insurance-based structures, such as private placement variable annuities (PPVA) or private placement life insurance (PPLI), may help eligible investors with long time-horizons improve after-tax outcomes for strategies that are inherently tax-inefficient

Caveat: These structures can offer potential benefits, including tax deferral and, in some cases, tax-efficient wealth transfer. But they also involve costs, complexity, access restrictions and regulatory requirements.

The bottom line: Focus on what you keep after taxes

Tax-aware investing typically works best (i.e., supports compounding and after-tax wealth growth) when it is part of a holistic approach to portfolio design that incorporates an investor’s investment objectives, risk tolerance and liquidity requirements.

Keep in mind: While these strategies can help manage taxes, they may still be due when assets are sold, distributions are taken or wealth is transferred.

Conclusion: Our thinking

Tax-aware investing is not about allowing taxes to drive investment decisions. It’s about implementing a well-designed portfolio with an eye toward what you ultimately keep after taxes, while staying aligned with your objectives, risk tolerance, and liquidity needs.

The ideas outlined above represent the thinking of J.P. Morgan investment specialists. Your dedicated client team can help you—in concert with your tax and legal advisors—evaluate which strategies are best suited to your personal circumstances and investment objectives.