What’s the macro outlook at mid-year?

The first half of 2026 was defined by elevated macroeconomic and geopolitical uncertainty. However, the global expansion is on solid footing due to improving business sentiment and a resilient consumer.

“We see three core themes shaping the second half of 2026. First, markets will continue to navigate the tension between the ongoing energy supply shock and a resilient growth backdrop, supported by improved labor markets. Second, the AI upstream theme will remain a key pillar of growth as the capex cycle broadens. And third, geopolitical fragmentation will persist as a structural source of uncertainty across macro and markets,” said Hussein Malik, head of Global Research at J.P. Morgan. “Against this backdrop, we see a broad realignment of supply chains, and of trade and capital flows, as security and resilience considerations increasingly take precedence over cost in global investment decisions.”

J.P. Morgan Global Research also expects inflation to be sticky, resulting in uneven and gradual hikes from developed market (DM) central banks. However, the Federal Reserve (Fed) will likely be on hold for the rest of the year. “This slow, uneven pace, with the Fed staying ‘behind the curve,’ remains a key anchor of our constructive risk asset outlook,” said Fabio Bassi, head of Cross-Asset Strategy at J.P. Morgan.

Equities: An upward path

At the start of 2026, J.P. Morgan Global Research took a constructive view on equities on the back of the U.S.-led AI supercycle. This optimism still holds; consequently, the team has increased its S&P 500 year-end price target to 7,800 and 2026 S&P 500 earnings per-share (EPS) estimate to $350 (+29% year over year).

“However, it’s important to keep in mind that the path upward will be non-linear, as the market will need to clear various hurdles,” said Dubravko Lakos-Bujas, head of Global Markets Strategy at J.P. Morgan. “Strong back-to-back earnings have reset the bar higher, making it more difficult for companies to significantly surprise to the upside on both earnings and capex. Additionally, extreme crowding in the Momentum factor is at risk of a reversal. The rapidly increasing equity supply expected over the coming quarters, alongside potentially tighter monetary policy, could constrain equity multiples.”

Beyond the U.S., the outlook for international equities is bullish. “The macro backdrop is staying supportive, underpinned by strong earnings momentum. In addition, we believe inflation expectations will not become unanchored,” said Mislav Matejka, head of International Equity Strategy at J.P. Morgan. In this vein, the MSCI Emerging Markets Index is forecast to hit 2,000 by December 2026.

The global economy: On solid ground

While the Middle East conflict has materially altered projections for energy prices, the lift in global goods sector activity during the first half of 2026 has proven stronger than expected. “This lift is tempering much of the purchasing power squeeze facing global energy consumers, and we have maintained our projection that the global expansion stands on solid ground this year,” said Bruce Kasman, chief global economist at J.P. Morgan.

However, there are vulnerabilities to the outlook. “Foremost is the risk of a resurgence of conflict that prompts a sharp rise in energy prices. At the same time, the headwind from Western Europe’s recent sentiment slide and China’s continued reliance on exports highlight the potential for divergent regional outcomes,” Kasman noted.

On the whole, global core inflation is forecast to remain sticky this year — close to its 3% average over 2024–2025. This is especially as new core goods price pressures have emerged as a result of firming demand, supply chain bottlenecks in the tech sector and the energy price pass-through. “Nevertheless, we still see patience for central banks for now. Even with expectations for rate hikes in the coming months, we anticipate global policy rates to rise less than 20 basis points (bp) over the course of this year,” Kasman added.

FX: Bullish dollar view

J.P. Morgan Global Research turned bullish on the U.S. dollar in March and continues to see the greenback holding strong through year-end. This forecast is underpinned by factors including stabilizing growth, sticky inflation and shades of U.S. exceptionalism.

“De-dollarization is underway but not USD-punitive, as U.S. cyclical dominance persists with foreign inflows still incoming for equities,” said Meera Chandan, co-head of Global FX Strategy at J.P. Morgan. “In addition, conviction in AI-driven U.S. exceptionalism is rising, supporting USD-bullish outcomes. AI’s increased use as a geopolitical lever could widen the divergence between the U.S. and the rest of the world, to the dollar’s benefit.”

Elsewhere, the outlook for other DM currencies is mixed, even though rate hikes are expected across the board. “Rate hikes that are driven by extreme stagflationary concerns or weakness in rate-sensitive markets are unlikely to be supportive for the currency, especially if the resulting hikes are not enough to get the currency into the high-yielding bucket,” Chandan explained. As such, J.P. Morgan Global Research is bearish on the Canadian dollar, euro, Japanese yen and Swedish krona.

For EM currencies, the pro-cyclical environment has extended, anchored by a reflationary global backdrop, resilient EM growth near potential and a structural inflow wave into the asset class. “This is especially so for higher-yielding currencies and those where central banks are proactively hiking on the back of a strong growth/inflation mix, rather than defensively in response to market pressure,” added Arindam Sandilya, co-head of Global FX Strategy at J.P. Morgan.

Credit: Modestly wider spreads

Global credit markets demonstrated resilience during the first half of 2026 due to attractive all-in yields, which drew strong institutional demand for high-quality corporate credit, especially in North America. Credit spreads are tight as a result.

J.P. Morgan Global Research’s base case for most market segments is for spreads to move sideways or widen modestly through the second half of the year. It has revised its spread target for JULI (U.S. high-grade credit) from 85 bp to 95 bp, and continues to see high-yield bond spreads widening to 350 bp by year-end.

In private credit, regulatory and liquidity headwinds remain. “However, we continue to believe that the challenges confronting the asset class are navigable and far from systemic,” said Stephen Dulake, co-head of Global Fundamental Research at J.P. Morgan. “We ultimately see a long-term reversion to a world where more of marginal dollars committed come from institutional investors such as pension funds, endowments and insurance companies.”

Emerging markets: Continued resilience

So far, most emerging markets (EM) have withstood the energy shock better than expected, though the inflationary impulse has led to a sharp repricing of central banks’ outlooks. Already, some central banks across EM are tilting more hawkish as price pressures continue to build.

“As we enter the second half of 2026, we expect the reflationary backdrop to persist, with heightened risks from U.S. rates repricing — even as the grip of oil prices on EM markets likely wanes,” said Luis Oganes, head of Global Macro Research at J.P. Morgan. “A sustained procyclical environment remains our key assumption, with EM growth expected to be near potential in the second half.”

Overall, while challenges exist — including tail risks for energy prices and a hawkish Fed pivot — the macro landscape is supportive for EM. “A resilient cyclical backdrop, low fundamental vulnerabilities and the proactive stance of several EM central banks will likely allow for continued carry outperformance, even as higher inflation and a likely hawkish shift by the Fed could challenge the asset class,” Oganes said.