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JPMorgan Asset Management Expects Oil Prices to Largely Normalize in 3Q4Q; Global Econ Growth to Remain Resilient
Nan Sheng, Chief Portfolio Manager at JPMorgan Asset Management, said the firms base-case scenario forecasts that oil prices will largely return to normal between the third and fo...
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JPMorgan Asset Management Expects Oil Prices to Largely Normalize in 3Q4Q; Global Econ Growth to Remain Resilient
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Nan Sheng, Chief Portfolio Manager at JPMorgan Asset Management, said the firms base-case scenario forecasts that oil prices will largely return to normal between the third and fourth quarters. Under this base case, it expects global economic growth to remain resilient. The firm maintains a moderately risk-on stance, including an Overweight position in equities, and reiterates its preference for the technology and communication services sectors. In fixed income, as the yield curve steepens, it prefers to shorten duration. Its credit allocation is Neutral, reflecting the asymmetric distribution of returns in the current environment.

Sheng noted that economies vary in their vulnerability to rising energy prices. In the firms base-case scenario, the US economy is expected to shift from above-trend growth to near- (or slightly above-) trend growth, with limited pass-through of higher oil prices to core inflation. Both consumers and businesses view the recent surge in energy prices as temporary, which should help avoid a broader economic slowdown.

Compared with other major economies, China appears to be among the least affected by the energy shock. The firm expects its GDP growth this year to ease only slightly from 5% to 4.8%. Europe presents a different picture, as its heavy reliance on energy imports exposes it to the dual risks of weaker growth and rising inflation.

Recent developments in AI include more agent-based models capable of executing end-to-end workflows. The firm has also observed rapid progress in inference economicsessentially the costs and trade-offs of running AI models in production environments. These advances are accelerating enterprise AI adoption and concentrating advantages among platforms that control distribution channels, data, and developer ecosystems.

At the same time, scaling AI systems requires substantial increases in computing power, networking, memory, and electricity. This is creating durable demand for companies building AI hardware and infrastructure, as well as large networks that can monetize higher user activity and AI-enabled products.

On the other hand, certain software companies appear to be at a disadvantage in the new AI ecosystem. Improvements in large language models have prompted investors to price in survival risks for some software firms, although the firm believes last quarters sell-off in software stocks was somewhat overdone.

Overall, the firm aims to maintain exposure to resilient growth opportunities while limiting downside risks. Its equity outlook remains moderately risk-on, reflecting its base-case expectation of solid economic growth and structural tailwinds from global fiscal stimulus and AI adoption. In fixed income, as the yield curve steepens, it prefers to shorten duration. Its credit allocation remains Neutral, reflecting asymmetric return distributions in the current environment.

Given the still-positive fundamental outlook from both top-down and bottom-up company analysts, lower valuation requirements, and lighter positioning, the firm continues to see opportunities in equity markets over a 12- to 18-month investment horizon. AI remains a structural positive driver for markets, although the near-term path may be uneven.

The transition from technology adoption to broad deployment is likely to be volatile. The firm remains focused on developments related to corporate profit margins, profitability, leverage conditions, and order backlogs converting into revenue.

Meanwhile, the firm emphasizes diversification by favoring countries and regions with resilient fundamentals and structural growth drivers. Japan remains a standout and attractive diversified equity allocation. Supported by economic reflation, ongoing corporate governance reforms, and improved capital discipline, Japans earnings realization cycle provides support for equities. Given Japans exposure to energy shocks, it also offers notable opportunities should global uncertainty recede.

Although credit markets continue to offer attractive total yields, overall macro risks are rising. While fundamentals remain broadly solid, some industries are showing signs of vulnerability, underscoring the importance of active management. After credit spreads retraced their March gains, future returns are expected to be driven more by carry than by capital appreciation. Given asymmetric downside risks, the firm maintains a Neutral stance on high-yield bonds and emerging market debt.

In rates and foreign exchange, the firm has shifted to a short duration position in US 10-year Treasuries, reflecting its fundamental expectation of improving growth and rising yields. However, given ongoing conflicts in the Middle East, it holds only moderate conviction in this view. Europe faces headwinds from its reliance on energy imports, and the European Central Bank appears likely to raise rates this year. In foreign exchange, if investors revive the notion of US economic exceptionalism, the US dollar could strengthen temporarily in the short term. Nevertheless, the firm maintains a medium-term bearish view on the US dollar. (ad/u)~

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