JPMorgan Chase & Co. is advising investors to adopt a more cautious stance heading into 2026, citing a mix of political, geopolitical, and structural economic risks that could increase market volatility despite strong performance in 2025.
The S&P 500's roughly 14% year-to-date gain, driven by enthusiasm around AI and elevated capital spending, masks vulnerabilities that could surface next year. JPMorgan researchers say corporate earnings and balance sheets remain generally healthy, but the "easy-money" environment that supported recent rallies is fading and returns are likely to moderate.
Key near-term concerns include a potential Supreme Court decision affecting Trump-era tariffs, which currently generate about $350 billion in annual government revenue. Loss of that revenue could worsen fiscal deficits and add pressure on inflation and interest rates. Rising U.S.-China tensions and growing economic nationalism also increase the risk of supply chain fragmentation, which could disrupt flows of critical materials and amplify market swings.
The 2026 midterm elections add another layer of uncertainty. Political shifts can increase legislative friction and policy unpredictability, historically correlating with periods of elevated market volatility during election cycles.
JPMorgan projects more moderate global equity returns of roughly 6 to 7 percent annually, a meaningful cooling from recent years. A traditional 60/40 portfolio is estimated to return about 6.4 percent annually, while diversified alternatives such as private equity, real estate, and infrastructure may offer slightly higher risk-adjusted returns. Technology and AI-related sectors remain important opportunities but carry valuation risks that warrant careful allocation.
Labor market softness and cost-of-living pressures are additional headwinds for consumer-driven industries. Researchers note that productivity gains from automation and AI could create uneven labor impacts across sectors, benefiting firms that successfully adopt new technologies while raising employment risks elsewhere.
Overall, JPMorgan's message is a shift from chase-of-return to risk management: diversify across sectors and asset types, prioritize quality balance sheets, and prepare for a higher-probability regime of intermittent shocks and more muted long-term returns.
Correction: An earlier version misstated the potential impact of tariff revenue on the federal deficit; the analysis assumes roughly $350 billion in annual tariff receipts that would affect deficit dynamics if changed.