17% is the number that shifted the bank’s public guidance. JPMorgan pointed to international and emerging-market ETFs that rose about 17% year-to-date in 2025, compared with roughly 7% for the S&P 500, and used those gains to argue investors should look past a pure AI megacap bet. The firm’s midyear outlook, published July 18, 2025 by J.P. Morgan Asset Management, and its broader 2026 Market Outlook expand the winners’ list to include developed international markets, emerging markets, cyclical sectors and AI adopters beyond the largest US mega-caps. That change means tactical rotation, not abandonment, with a specific window for rallies into early 2026.

J.P. Morgan has moved its public stance away from a concentrated Big Tech and AI-only bull case. The bank’s research teams now argue that the path to returns in 2026 will be broader. The pivot was signalled in a midyear outlook from J.P. Morgan Asset Management released July 18, 2025, and the bank’s 2026 Market Outlook elaborates that stance for the year ahead.

Why the shift matters

The midyear paper used a concrete piece of evidence to support the change. CNBC reported that the iShares Core MSCI International Developed Markets ETF was up more than 17% year-to-date in 2025, and that the iShares MSCI Emerging Markets ETF had gained about 17%, while the S&P 500 was up roughly 7% in the same period. J.P. Morgan Asset Management flagged that momentum as a signal investors should consider, rather than treating the market as a US-only, mega-cap AI story.

The bank’s global research teams reached a similar top-line conclusion. Across J.P. Morgan’s research channels, the firm expects developed-market and emerging-market equities to outperform cash and bonds in 2026, on an outlook that assumes some easing in monetary and fiscal policy will lift growth. The note argues that fading policy shocks and a partial recoupling of labour markets to growth should support a constructive year for equities relative to fixed income, even as sticky inflation limits the pace of central bank rate cuts.

That outlook reframes the risk-reward trade-offs for investors. US equity valuations have become concentrated, the firm notes, making selective exposure elsewhere potentially attractive. The research highlights lagging markets, specifically naming Japan and India as candidates that could catch up if global drivers shift toward growth and away from policy shock dynamics.

AI is still central, but the beneficiary list is wider

The AI theme hasn't been abandoned. J.P. Morgan’s strategists and its asset management team say generative AI remains material. But the bank now emphasises that beneficiaries extend beyond the handful of US platform providers that have dominated markets. Gabriela Santos, chief strategist for the Americas at J.P. Morgan Asset Management, pointed to a second wave where firms deploy AI to raise productivity in sectors such as utilities and industrials.

Mastheads

That means semiconductor suppliers and corporate AI adopters should participate alongside the large-cap platforms.

At the same time, the bank’s reading of CEO survey data, as presented in a summary cited by Benzinga, indicates that early AI adoption has produced stronger efficiency gains than clear top-line or margin improvements. The Benzinga account says boards and CFOs are increasingly asking for demonstrable return-on-investment from AI projects. In plain terms, companies will have to show profits, not just pilot projects, before markets award sustained valuation gains tied to AI.

The implication is tactical. J.P. Morgan’s market-intelligence strategists recommend a barbell approach. Keep exposure to the still-healthy US consumer and corporate earnings, they say, while rotating some risk toward international equities and cyclical opportunities that could benefit from a growth reacceleration. The firm describes tactical bullishness into early 2026 rather than a single, concentrated bet on megacaps.

That advice fits the data the bank highlights. If international and emerging-market ETFs continue to outperform, reallocating a slice of risk towards those regions hedges valuation concentration at home. If AI projects start to show clearer profit signals, a portion of portfolios can remain positioned for platform winners and suppliers. The strategy is deliberately pragmatic: participate where momentum and fundamentals align, and demand clearer financial payoff where hype has run ahead of results.

There are cross-market specifics to watch. The bank flags Japan and India as markets that could catch up.

It also suggests utilities and industrials as sectors where AI-driven productivity gains could translate into measurable improvements. That widens the lens for investors who had been focused on a narrow set of US technology companies.

Importantly, the midyear note and the 2026 Market Outlook don't prescribe a single allocation. They set a framework for active positioning. That matters for portfolio managers balancing concentrated valuations against areas with fresh momentum and lower relative prices.

For Canadian investors, the change in message is worth noting. A shift toward international developed and emerging markets may alter currency, sector and geopolitical exposure in portfolios. The bank’s call for clearer AI profit signals also puts a premium on corporate reporting and capital-allocation discipline, themes Canadian boards and CFOs are already grappling with.

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J.P. Morgan’s published outlooks point to a tactical window for market rallies into early 2026, and to a year where earnings delivery from AI projects and relative performance in international equities will matter. The bank’s near-term recommendation is concrete: keep US consumer and corporate exposure while rotating a portion of risk toward international and cyclical opportunities, and insist on measurable returns from AI investments before increasing allocation.

This article was created with AI assistance.