At the same time, the housing sector has started to turn a corner, manufacturing construction is soaring, household financial obligations remain low (even with higher interest rates), people are spending on services and big ticket items like cars, and corporate debt levels are still okay.

So what’s the problem?

Bears might say that the stronger the economy stays, the more the Fed will have to hike rates, and the greater the risk it all comes crashing down (even if it happens later than most were betting on).

Moreover, the market has already rallied a lot (the S&P 500 just had its second-best first half in the last 25 years), and with rates this high (and potentially heading higher), valuations could start to take some heat. Some argue that could make for a difficult second half.

But that’s just one take.

On the other hand, bulls might say it’s a good thing that the economy has taken 500 basis points of Fed rate hikes pretty much in stride, especially given that inflation is falling in the midst of it all. Almost 80% of the goods and services in consumers’ price basket were running at a dangerously fast clip north of 6% just eight months ago. Today, that’s down to almost 30%, while more and more components are starting to decelerate below a 3% pace.

In that same vein, you could argue valuations are fair for what earnings are doing. The worst pain already seems to be behind us, with Q4 last year marking the most earnings declines by sector (around the same time the S&P 500 bottomed in October). Now, expectations for future earnings are rising again. So even if higher rates dial up the pressure on valuations, a lift to earnings from a stronger economy could be good for stocks.

The debate is rife.

But building a thoughtful multi-asset portfolio means investing for the possibility of a range of scenarios. Taking what we know in balance, we believe stocks will come out from this period of uncertainty on top, proving their worth as the long-term return generators. Bonds have had another tricky year, but the entry point looks even more ripe today. And when the day-to-day flurry of public markets feels overwhelming, alternatives can offer both diversification and exposure to difficult-to-access trends.

To show what we mean, did you know that…

…outside of big tech, the other 494 stocks in the S&P 500 (taken together) are trading at a discount.

While tech has dominated this year’s rally, other players are starting to get back in the game. Valuations are attractive for the majority of stocks, with the P/E ratio for the market ex-big tech trading around 15x (below its long-term 15.8x average). That offers an entry point to rebuild your equity portfolio for what could be the next bull market.

…over 90% of bonds in Bloomberg’s U.S. Aggregate Bond Index are trading below par.

The index is also down almost 15% from its all-time highs. That offers a compelling entry point. What’s more, with yields this high, embedded is a pretty good buffer against rates moving higher. For instance, a 10-year Treasury bond yield would need to rise about another 50 basis points (to 4.55% from today’s 4.05%) to eat up your return over the next year.

…new loans in the private credit market are originating at spreads that are some 300 basis points wider than public markets.

With credit growing scarcer, that opens up a bigger window for private lenders to step in for borrowers that would have otherwise turned to a bank or public markets. Given companies still need credit (to grow, to make investments, or to pay off other loans), private lenders can charge a premium. That means that managers focused on direct lending can take advantage of this environment.

The bull versus bear debate is raging, but we believe the assets we use to build portfolios are well-positioned to do their jobs over the next year and beyond.

Your J.P. Morgan team is here to talk through what this means for you and your portfolio.

All market data from FactSet and Bloomberg Finance L.P., 7/7/23.

DISCLOSURES

Small capitalization companies typically carry more risk than well-established "blue-chip" companies since smaller companies can carry a higher degree of market volatility than most large cap and/or blue-chip companies.

International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be more volatile.

Diversification does not ensure a profit or protect against loss.

The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors includeretail, biotechnology, industrial, technology, health care, and others.

The MSCI World Index is a broad global developed markets equity benchmark designed to support: Asset allocation: Consistent, broad representation of the performance of developed equity markets worldwide, without home bias.

The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mitual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

The NYSE FANG+ Index is an equal-dollar weighted index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix, and Alphabet's Google.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

RISK CONSIDERATIONS

• Past performance is not indicative of future results. You may not invest directly in an index.
• Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.
• The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.
• The prices and rates of return are indicative, as they may vary over time based on market conditions.
• As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
• Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with the each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team.
• Additional risk considerations exist for all strategies.
• The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
• Structured products are complex debt obligations of a corporate issuer the return of which is linked to the performance of an underlying asset. They are significantly riskier than conventional debt instruments and may not be suitable for all investors.
• Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.
• Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.

IMPORTANT INFORMATION

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​ Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. ​