JPMorgan’s strategy team, led by Fabio Bassi, anticipates a difficult second half of 2025 as markets balance opposing forces. On one side, the U.S. economy is facing headwinds from rising trade tensions and a move away from the prior narrative of economic “exceptionalism,” which has increased talk of recession risk. On the other side, core economic indicators remain relatively healthy: credit imbalances are limited and inflationary effects from tariffs so far appear constrained.
The team points out an intriguing disconnect in market signals. Implied volatility measures such as the VIX have fallen materially, while measures of economic policy uncertainty remain elevated. That divergence suggests markets are showing resilience rather than outright complacency, but it also complicates positioning for investors who must weigh the potential for renewed volatility against the current calm.
JPMorgan’s strategists offer a nuanced, mixed outlook. In the near term they are constructive on risk assets. Support for equities and other riskier investments comes from structural trends like continued investment in artificial intelligence, along with the effects of higher interest rates that have so far not derailed growth. At the same time they expect the U.S. dollar to weaken over the period, reflecting relative growth and policy dynamics. Their view on gold is cautious: while gold can act as a hedge against uncertainty, current dynamics and their assessment of real rates and dollar direction temper enthusiasm.
Despite these finer points, the strategy team stresses the key downside scenario to monitor: a recession triggered or amplified by trade conflicts. If escalating tariffs and trade barriers erode consumer confidence and spending enough to materially slow growth, the Federal Reserve could be forced into aggressive easing. That path would reshape asset returns and increase volatility across markets, particularly if it coincides with credit stress or a sharper-than-expected slowdown in labor markets.
In practical terms, the team’s approach for investors is cautious diversification—recognizing near-term upside from cycle-sensitive assets driven by secular themes like AI while keeping allocations that can withstand a potential growth shock. They emphasize active risk management given the mixed signals from volatility and policy uncertainty. Scenario planning—mapping portfolios to outcomes that include both a continued resilient expansion and a tariff-induced slowdown—remains central to their advice.
Overall, JPMorgan’s message is one of guarded optimism paired with vigilance. Markets can continue to perform amid solid underlying fundamentals, but the possibility of policy-driven disruptions means investors should prepare for a range of outcomes, from continued risk-friendly returns to a more severe downturn that forces a policy response from the Fed.