JP Morgan Asset Management (JPMAM) expects Brent crude prices to return to normal levels in the third and fourth quarters, allowing the global economy to recover from the energy shock and maintain solid growth. This outlook supports its risk-on strategy, favouring an overweight position in equities for the next 12 to 18 months.

“Vulnerability to higher energy prices varies across the global economy. In our base case, we see the US economy shifting from above-trend growth rates to closer to slightly above-trend growth rates, with limited pass-through of higher oil prices to core inflation,” wrote Sylvia Sheng, lead portfolio manager, JPMAM, in a note this week.

“Both consumers and businesses will treat the energy price spike as temporary, which should help avoid a broader economic slowdown.”

AI also plays a crucial role in JPMAM’s outlook.

“We believe the AI capital expenditures cycle will remain robust, supporting strong profit margins and balance sheets in the technology and communication sectors. Recent advancements in AI, including more efficient models and improved inference economics, are accelerating enterprise adoption,” Sheng said.

While some software companies may struggle in this new AI landscape, Sheng (pictured) believes the recent sell-off in the sector was excessive.

JPMAM’s equity outlook remains “mildly pro-risk”, supported by strong fundamentals and favorable valuations.

“We continue to identify opportunities in equities over a 12 to 18-month horizon. Japan is highlighted as an attractive investment due to its strong earnings potential, economic reforms, and ability to buffer against global uncertainties,” said Sheng.

While credit markets offer appealing yields, overall macro risks are rising, so “we maintain a neutral stance on high yield and emerging market debt, focusing on active management amid emerging vulnerabilities,” she said.

In rates and foreign exchange, JPMAM favours short positions on US 10-year durations based on a positive growth outlook.

“However, we hold this view with caution due to ongoing Middle East tensions. The European Central Bank is expected to raise rates, and while the U.S. dollar may strengthen in the short term, we maintain a bearish outlook for the medium term,” Sheng said..