J.P. Morgan Wealth Management released its 2026 mid-year outlook on June 1, setting out an asset-allocation framework for high-net-worth clients in the second half of the year. TechFlowPost and TideResearch summarized and interpreted the report against a backdrop of the Strait of Hormuz blockade, a sharp rise in oil prices, renewed inflation pressure, and a shift in the AI narrative from enthusiasm toward skepticism. The report’s overall stance is cautiously optimistic: J.P. Morgan does not frame current volatility as a reason to exit risk assets, but as a reason to change how portfolios are positioned.
AI spending is still being revised higher
The first major conclusion is that J.P. Morgan does not believe the AI supercycle is over. In its view, Wall Street has become too negative on the theme and is pricing in an “AI peak” that the data do not support. The five major hyperscalers named in the report — Microsoft, Meta, Oracle, Google and Amazon — are expected to spend more than $650 billion in capital expenditure in 2026, an increase of $130 billion from the previous earnings season. Cloud rental prices for GPUs, the core chips used to train AI models, have risen 40% since last October, and supply is still not keeping up with demand.
The report also links AI investment to macro growth. AI-related investment contributed 25 basis points to real U.S. GDP growth in 2025. Taiwan’s GDP growth exceeded 7%, the fastest pace since 2010, with semiconductor exports cited as the main driver. Nvidia’s shares are trading at a 40% discount to their average price-to-earnings multiple over the past decade, according to the report, while the market is pricing chip sales as if they have peaked even as cloud business revenue continues to accelerate.
J.P. Morgan also notes that the financial profile of the hyperscalers is changing. Their combined free cash flow is expected to fall from $240 billion in 2024 to $73 billion by the end of 2026. Microsoft’s forward P/E has dropped from an AI-era high of 35 times to 22.5 times. The lightweight, high-return model that attracted investors over the past decade is being rewritten by heavy capital spending. J.P. Morgan argues that investors should focus more on revenue growth than cash flow at this stage, while acknowledging that those investments would become a drag if demand slows.
SaaS is absorbing the first wave of AI pressure
The report treats traditional software companies as the first clear victims of AI disruption. Roughly half of the constituents in the S&P software index IGV have fallen more than 50% from their all-time highs. J.P. Morgan’s basket of “AI-vulnerable” stocks is down nearly 20% this year, and the median operating margin in the U.S. software sector is only 4%. The business-model pressure is straightforward: SaaS products are often priced by seat count, while AI reduces the need for seats.
That pressure has already moved into credit markets. Around 21% of the U.S. direct-lending market is exposed to software companies, rising to 40% when technology and business services are included. Publicly traded technology loan funds have fallen close to the lows of the previous cycle. J.P. Morgan’s stress test shows that leveraged losses could reach 4% in an extreme case, though the report does not view this as a systemic risk for now.
The report also flags the possibility of large listings by SpaceX, Anthropic and OpenAI this year as a cycle-temperature gauge. J.P. Morgan reviews the history of the 25 largest IPOs and finds that, after those deals, the median newly listed stock underperformed the broader market by 30 percentage points in its first year. Among 18 such stocks, 12 fell in their first year. In years marked by mega-IPOs, the median annual market return was only 3%, well below the long-term average of 10%. The report does not declare a top, but it explicitly treats the market reaction to a SpaceX listing as an indicator to watch.
Inflation is not back to the old regime
J.P. Morgan’s inflation argument is not limited to the oil shock from the Strait of Hormuz. The key point is that U.S. inflation had not returned to its pre-pandemic norm even before oil prices surged. In January 2026, core PCE rose 3.1% year on year, with local service categories such as dining and personal care showing particularly firm price increases. Oil prices then doubled. Federal Reserve models indicate that every $10 increase in the price of a barrel of oil lifts inflation by about 0.3 percentage points; this time, the increase was $40.
The report does not expect a full replay of the 1970s. It points to the absence of a wage-price spiral in the labor market, a declining quit rate, housing inflation falling from 5% at the end of 2024 to a little above 3%, and China’s excess capacity suppressing global goods prices. Still, J.P. Morgan argues that the floor for inflation is now higher than before the pandemic and is likely to fluctuate around 3% rather than return to 2%.
This has direct implications for cash and bonds. Since 2020, U.S. consumer prices have risen 25%, while core fixed income has returned only 6%, and cash has earned even less. Nearly 20% of J.P. Morgan’s client assets remain in cash and short-term bonds. The report’s message is blunt: what looks like safety can become a slow loss of purchasing power.
J.P. Morgan recommends shifting part of portfolios into assets tied to inflation. Commodities, infrastructure and real estate are suggested at around 5% of a portfolio in aggregate. Gold is recommended separately at 3% to 6%. The report also highlights hedge funds: in 2022, when equities and bonds both fell, macro hedge fund strategies returned 9%. At the same time, J.P. Morgan acknowledges that 94% of its private banking clients have never bought hedge funds and 86% have never invested in infrastructure products.
Hormuz, energy and market drawdowns
The geopolitical section covers the Middle East, U.S.-China competition and Europe’s difficulties. The Strait of Hormuz blockade is described as the largest market shock in the first half of the year. Around 20 million barrels of oil pass through the channel every day, equal to one-fifth of global oil consumption. After the U.S. and Israel jointly struck Iran, oil prices nearly doubled within days, while European natural gas prices rose close to 100% over two days.
The report also notes comments from the CEO of Qatar Energy, who said that 15% of LNG capacity could remain offline for up to five years. Qatar supplies about 30% of the world’s helium, a required input for semiconductor manufacturing, and South Korea has already warned of the risk of chip plant shutdowns. J.P. Morgan believes the conflict is moving toward de-escalation, but it also says damage to physical infrastructure and the energy risk premium will not disappear quickly.
Against that backdrop, J.P. Morgan’s advice is to buy U.S. equities on weakness. U.S. stocks fell about 10% in the first half of the year, and the S&P 500’s P/E briefly dropped below 20 times. J.P. Morgan’s historical data show that when investors bought after the VIX rose above 30, the probability of a positive return over the following six months was 70% to 83%, with an average gain of 12.4%.
Fragmentation is pushing capital toward selected emerging markets
The report describes the U.S. and China as building separate ecosystems. The United States is restricting chip exports to China and working with the Netherlands and Japan to limit semiconductor equipment access. China is expanding exports to non-U.S. markets. Belt and Road investment reached a record high in 2025; China invested $53 billion in Brazil in one year, and its total trade with Latin America has surpassed that of the United States. J.P. Morgan’s conclusion is that future investment returns will increasingly depend on which camp an asset belongs to, not only on the growth of the company itself.
J.P. Morgan identifies several emerging-market areas. Latin America holds more than 40% of the world’s copper and nearly 60% of lithium reserves, along with nickel, rare earths and agricultural resources. Foreign direct investment has doubled over the past two decades, central banks have controlled inflation more effectively than developed-market peers, and politics is shifting toward more pragmatic, pro-business governments. Gulf countries in the Middle East are using oil revenue to build AI data centers; Saudi Arabia and Blackstone have a $3 billion data-center project, with costs 30% lower than in the United States.
East Asia is highlighted because Taiwan and South Korea are key nodes in the AI hardware supply chain. If AI capital expenditure continues to accelerate, the report says these economies’ exports and pricing power will strengthen further. Chinese equities trade at their deepest discount to other Asian markets in 20 years. The report also cites that 80% of Chinese consumers are excited about AI products, compared with 38% in the United States, while China’s electricity costs are roughly half those of the United States. J.P. Morgan’s stance on China is described as becoming cautiously warmer; with clearer pro-business policy signals, it says Chinese equities would undergo a structural re-rating.
Europe receives J.P. Morgan’s most conservative assessment. Electricity prices are two to four times those in the United States. Research and development spending is only 2.2% of GDP, compared with 3.6% in the United States and 5.2% in South Korea. Venture capital scale is one-tenth of the U.S. level. The energy shock is also forcing the European Central Bank to raise rates again. Within Europe, J.P. Morgan recommends only defense and infrastructure-related exposure, while avoiding autos and consumer sectors.
What J.P. Morgan favors and avoids
Condensed into a portfolio list, the 60-page report favors the AI infrastructure chain, including chips, optical modules and power; emerging-market equities and bonds; real assets such as commodities, infrastructure and gold; defense-related assets; and cautious additions to China AI concepts. The report’s least favored areas include cash, traditional subscription software companies, European autos and consumer names, and a simple 60/40 stock-bond structure as the main defense for the second half of the year.
TechFlowPost notes that the article is TideResearch’s summary and interpretation of J.P. Morgan Wealth Management’s 2026 mid-year outlook. The views and recommendations cited are J.P. Morgan’s and do not represent TideResearch’s position or constitute investment advice. The original report was linked as a J.P. Morgan PDF, and the cited data sources include J.P. Morgan Wealth Management Mid-Year Outlook 2026, Bloomberg, FactSet, the U.S. Bureau of Labor Statistics, IEA, METR and Renaissance Capital. The source also reminds readers that sell-side reports are naturally bullish and that J.P. Morgan provides investment banking services to several companies mentioned in the report; the value of the report lies in its framework and data rather than any single conclusion.