Fuelling the engine: J.P. Morgan Asset Management's Q1 outlook on equities and fixed income

Staying on top of market movements has never demanded so much from investors, and forecasts are getting validated or invalidated in record time.

So much so, that one of J.P. Morgan Asset Management's (JPMAM) five surprise predictions for 2026 - gold hitting US$5,000 - took less than six weeks to materialise. 

But it's still important to take a moment to step back and get a view of the wider landscape. 

Kerry Craig, JPMAM Global Market Strategist and Bob Michele, CIO of the JPMAM Global Fixed Income, Currency & Commodities (GFICC) Group offered their outlooks on how equities, fixed income and the macro picture are shaping up in early 2026. 

On the macro side, things are looking "relatively robust", says Craig, and it's more micro issues that are worrying investors right now, namely high equities valuations and concern around private credit. 

"We are looking at a world where we do see an improvement in the global economy," says Craig. He points to two main reasons for that: the "supportive power" of fiscal policy and huge AI CapEx spend. 

While high valuations, steady unemployment and economic activity point towards us being in a relatively late stage of this economic cycle, governments are signalling an intention to increase spending. 

The outlook for equities

Global spending growth should be good news for equities, especially given the strength of earnings forecasts across global markets, says Craig. 

"When we look around the world, based on consensus numbers, we see earnings numbers for 2026 that are in the low teens pretty consistently across the US, Europe, Asia, and Australia," says Craig. 

"We're really following the earning story more than anything else."

He also expects emerging markets to again outperform the US as beneficiaries of both a weakening US dollar and the AI CapEx spend that filters through to EM economies. 

"What we did learn last year was that global diversification did work," says Craig. "We did see markets that outperformed the US. We thought about the implications of currency movements for investors in Australia and how much that could impact returns. And we continue to see that story play through this year."

"What we're seeing is more convergence and growth: the rest of the world continuing to catch up to the US."

"It should be another good year for investors. Valuations are obviously the biggest challenge, but I think earnings and corporate health look relatively good."

The fixed income outlook 

According to Bob Michele, fixed income markets are making a comeback, as clients realise they're now "woefully under-allocated to fixed income".

After a prolonged period of non-existent yields, investors were "putting money elsewhere", says Michele, whether that was alternatives, equities or even cash.

"Now with yield back in the market and with clients largely feeling that they're full on equities and alternatives, they're looking for any opportunity to get back in the bond market."

He believes the fiscal picture for the US leaves the Federal Reserve in a pretty good place to pause rates, and has created a "pretty healthy" environment for credit markets. 

"The bond market looks priced pretty close to textbook perfection."

2- and 10-year US treasuries are around 10 basis points richer than he'd like to see, but perfectly fine, and expects a range of 3.75-4.25% on 10-year US treasuries.

With recession fears now "far off in the distance", and the looming US midterms, we can expect an "expanding economy with a lot of monetary and fiscal support, says Michele. 

"In the bond market we are buying corporate credit at 75 basis points incremental yield to treasuries," he says. "We're buying a lot of high yield - you're getting about 3% more than government bonds -  that puts you at about 6-7% yield on average."

"Corporate credit looks fine and we do have a lot in emerging markets, particularly the local emerging markets."

While concerns have been raised over tightening credit spreads and AI-driven corporate borrowing, but that has occurred mostly in private credit markets.

"I look at the private credit markets as having reinsured the public credit market," says Michele. "I'm very bullish there."

Locally, the hawkish divergence from the RBA is also creating an opportunity.

"The RBA seems to be the one central bank left standing that has any sort of inflation- and fiscal discipline-driven view on things. So the long end of the curve looks pretty stable to us."

He also points to one of JPMAM's other surprise predictions for 2026: a US Treasury yield curve that's flat at 3%. The key driver of this will be the Trump administration's attempts to bring mortgage rates down ahead of US midterms. 

With housing affordability a primary concern in the US as it is in Australia, Republicans will be attempting to shore up votes by bringing rates down, and this will impact the yield curve. 

"One of the big frustrations in the US is housing affordability," he says. "There is none. It's unaffordable." 

"Prices aren't going to come down. Wages probably don't go up fast enough over the next nine months. So the only lever left is to bring mortgage rates down."

The significance of the midterms is why Michele is fairly bullish in the medium-term, but why longer-term predictions are fraught with uncertainty. 

"I am not worried about the next 9-12 months, I'm worried about the last 18 months of the administration."

"What we see is a lot of money sloshing around in the system. A lot of it is from COVID, a lot of it is from quantitative easing and a lot of it is from the extension of fiscal stimulus, but it can't continue indefinitely."

"At some point when the big pause button is hit - that's when I worry more about credit risk in the markets."