David Kelly has a blunt message for investors navigating 2026. The chief global strategist at J.P. Morgan Asset Management sees an economy that feels merely adequate for most Americans yet remains excellent for equities. Profits fueled by artificial intelligence spending keep the bull market alive. Risks abound. Concentration in a handful of hyped names could trigger the next painful correction.
Kelly delivered the assessment in mid-June as part of the firm’s 2026 mid-year outlook. Inflation had just printed 4.2 percent in May, the fastest pace in three years. The Federal Reserve sat on hold. Concerns about tariffs, geopolitical tensions in the Middle East, and potential shifts in U.S. political control after midterm elections weighed on sentiment. Yet Kelly urged clients to stay invested in risk assets. The baseline case called for economic momentum to pick up in the second half. Yahoo Finance captured his core line. “It’s an OK economy for Americans; it’s a great economy for the stock market.”
Short sentence. Long analytical one that ties fiscal refunds, hyperscaler capital expenditure, and the wealth effect from elevated stock and home prices into a single supportive force for corporate earnings and consumer spending among higher-income households. Kelly expects real GDP growth to strengthen mid-year before any late-year dependence on additional Washington stimulus. He does not see recession. “The wealth effect and the AI boom keep us going,” he said in the Financial Post report from June 17.
But. The divergence stands out. J.P. Morgan’s own baseline forecast sees unemployment steady near 4.5 percent, job gains limited to roughly 60,000 per month, and CPI inflation climbing toward 3.6 percent mid-year before easing to 2.2 percent by the fourth quarter. Moderate growth. Persistent crosscurrents from economic nationalism, political polarization, immigration policy, and tariff risks. Kelly described the moment in J.P. Morgan’s “Notes on the Week Ahead” as one where political and geopolitical shocks could derail the expansion while high valuations leave large-cap stocks, especially those tied to AI euphoria, exposed.
AI spending overrides macro softness for corporate America.
That tension defines the outlook. On one side, hyperscalers continue to pour hundreds of billions into data centers and related infrastructure. S&P 500 earnings growth remains solid in high-single digits for the year, with technology contributing the lion’s share. On the other, rate-sensitive sectors such as housing stay soft. Middle-income consumers feel pressure. Kelly highlighted in recent commentary that the productivity gains from AI adoption still lie ahead. This supports further equity gains even as the broader economic picture appears uneven.
Investors have enjoyed three consecutive years of double-digit returns in U.S. equities. The current stretch now enters its fourth year. Concentration risk looms large. “The bear market’s very likely to be centered in whatever area of the economy, of the markets, have the biggest hype and the euphoria and excitement beforehand,” Kelly warned. “And that’s everything to do with AI.” The quote appeared across multiple reports, including the Yahoo Finance piece published June 21 that built on Bloomberg interviews.
And the Fed? Policymakers are expected to hold rates steady in the near term with no hikes anticipated over the next two years. Kelly sees room for cuts in 2027 if inflation cools as projected. That path assumes resolution of energy price spikes tied to Middle East conflicts and continued moderation in shelter costs and wages. Recent X posts from market accounts amplified Kelly’s view that May’s inflation reading could mark the cycle high, reducing pressure for aggressive tightening.
Portfolio construction advice follows the divergence theme. J.P. Morgan recommends bonds now that yields remain attractive. Emerging markets gain appeal through their linkage to Asia’s semiconductor supply chain, with South Korea and Taiwan flagged for stronger performance despite elevated exposure to hard tech. For diversification beyond traditional stocks and bonds, the firm points to real estate, infrastructure, and transportation assets. These sectors offer defensive characteristics while participating in broader AI-enabled productivity trends.
Long-term assumptions reinforce the message. In its October 2025 release of 2026 Long-Term Capital Market Assumptions, J.P. Morgan projected a 6.7 percent annualized return for U.S. large-cap equities over the next 10 to 15 years. A traditional 60/40 portfolio sits at 6.4 percent, rising to 6.9 percent with a 30 percent allocation to diversified alternatives. David Kelly himself expressed greater confidence in these figures than comparable estimates from peers, according to commentary circulating on X in recent weeks.
Yet caution persists. After years of strong gains many portfolios have grown concentrated and riskier than intended. Valuations sit at elevated levels. Any disappointment in AI-driven profit delivery could prompt a sharp re-rating. Kelly’s team sees the expansion continuing barring major shocks. Fiscal stimulus from tax refunds provides a near-term lift. Political outcomes, particularly Democratic gains in Congress, could constrain further checks in 2027 and weigh on late-decade growth.
So the strategist’s counsel lands clearly. Remain allocated to equities. Accept the OK economy for households as the price of a stock market supported by spectacular profit growth. Monitor concentration. Seek ballast in alternatives and international names less tied to U.S. large-cap AI leaders. The AI boom refuels the rally. For now. The next bear market, whenever it arrives, will likely center on the very names that powered the latest leg higher.
Recent coverage echoes this balance. A Benzinga article from June 18 captured similar themes, noting resilient consumption and the absence of recession forecasts. J.P. Morgan’s own mid-year documents and LinkedIn posts from Kelly in recent months reinforce the divergence between cyclical softness and technology-driven resilience. Markets have ground higher on solid fundamentals. The question is how long the split between main-street experience and Wall Street returns can persist before policy or exogenous events force convergence.
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