A soft-landing scenario, falling inflation, easing monetary policy, and positive earnings growth are emerging as positive drivers for the global economy, and could benefit the equities market in 2025.

Nevertheless, the economic activity outside of the US has been mixed. While real wages are rising in Japan, manufacturing sector weakness has been a drag in Europe and domestic demand in China remains sluggish. Investors also face the challenge of high valuations in sectors that have surged in 2024 and divergent trends are emerging within industries.

Meanwhile, uncertainty has shifted from electoral results to policy directions, largely due to the unpredictability of a second Donald Trump administration, as there is often a gap between campaign promises and actual outcomes, underscoring the importance of economic fundamentals.

Managing the impact of political & policy uncertainty

To effectively manage potential volatility stemming from elevated political and policy uncertainty, such as actions from the US Republican administration, it is crucial to diversify across geographies, sectors and investment themes.

Trade and industrial policies, including tariffs, could have significant impact on the economic outlook, leading to various outcomes that could potentially trigger periodic bouts of volatility. Investors could consider core-style equity strategies that emphasises selecting high-quality companies with strong fundamentals and resilient business models to navigate uncertain environments.

This is where active management can play an important role.

Distinguishing signal from noise

In investing, distinguishing between meaningful signals and market noise is crucial. Investors should focus on avoiding overreacting to market swings and maintain a steady approach to drive performance.

Historically, the stock market tends to perform well regardless of the administration in power, often achieving solid gains. As illustrated below, equities have generally posted robust returns over the last decade even as the White House changed hands across three different administrations.  

This reinforces the idea that market fundamentals, rather than political agendas, drive performance.

2025 continues to look strong from corporate earnings perspective where the gap in earnings growth between the mega-cap technology companies and the rest of the market is expected to narrow. This shift could herald a broadening of market returns, as the dominance of a few large tech companies begins to wane, allowing other sectors to share in the growth.

Our positioning in the JPMorgan Global Select Equity Strategy

Our JPMorgan Global Select Equity Strategy harnesses a core, style-agnostic, and research-driven approach that actively taps into our proprietary company insights and valuation signals to guide the portfolio.

We have a conservative view on earnings, and current equity valuations are balanced - not too high or low. This means there are opportunities for active managers to find undervalued, high-quality stocks.

We see opportunities in defensive stocks over cyclicals, reflecting our cautious economic outlook and focus on stability on the back of a more uncertain economic backdrop. For long-term adjustments, we have reduced holdings in technology, pharmaceuticals, and industrials, and increased investments in retail and media, based on valuations, fundamental insights and a general reallocation of capital into relatively more attractive opportunities.

We are also investing in long-term trends with strong fundamentals and attractive valuations. US utilities are of interest, presenting both defensive and growth potential. This sector could benefit from population shifts and plays a pivotal role in artificial intelligence (AI) infrastructure, creating opportunities beyond traditional defensive plays. Utilities are more integrated into industrial and energy sectors, driven by demand for power, graphics processing units and AI technologies.

Looking ahead, we remain alert to potential valuation shifts that could occur as investors focus on short-term positives over stronger and longer-term fundamentals.

Conclusion

Our JPMorgan Global Select Equity Strategy adapts to market changes using a core, style-agnostic, and bottom-up research-driven approach , along with disciplined risk management.