JPMorgan Asset Management says there are two areas where equity investors can continue to find returns in a complicated second half: International stocks and artificial intelligence beneficiaries. Developed markets excluding the U.S. as represented by the iShares Core MSCI International Developed Markets ETF are up more than 17% year to date. Emerging markets as represented by the iShares MSCI Emerging Markets ETF has similarly rallied 17%. Meanwhile, the S & P 500 is up about 7% om 2025. That momentum should carry on in the latter half of the year, per, JPMorgan Asset Management. “We expect this strong momentum in international equities to continue, with some laggards catching up in the second half including Japan and India. We also expect further depreciation of the U.S. dollar, given its elevated level and the clear shift in drivers,” they said in their midyear outlook report released Friday. That outperformance comes even as the U.S. increases pressure on the trade front, with President Donald Trump announcing a slew of tariffs on imported goods. “The first half of the year was really all about this huge policy storm,” JPMorgan Asset Management’s Gabriela Santos said. “I think the second half of the years would be much more about understanding the aftermath of that storm in specific areas of the economy, specific areas of the market.” To be sure, Santos noted that overseas markets are coming off a low base after more than a decade of underperformance, at a time when valuations in the U.S. equity market are stretched and looking highly concentrated. “This is not about the end of U.S. exceptionalism at all. It’s about the normalization of the exceptionalism,” the group’s chief strategist for the Americas said, adding: “We’ve been talking about this for years, but there’s finally been a catalyst to unleash it.” Santos also expects artificial intelligence will continue to be a major theme in the market, but urged investors to look elsewhere from the “Magnificent Seven” to the next phase of AI beneficiaries. She noted earnings growth is steadily declining for Mag Seven, which is projected to post 14% earnings growth in the second quarter, down from more than 27% in the first. “We’re very positive that the AI theme is real and has come back as a main driving force for the market,” Santos said. “But just that, I think what’s really encouraging actually about performance this year has been that there’s really much more differentiation within that theme, and importantly that it’s always on to the next phase, and this is the next phase of the AI theme, which doesn’t just benefit that concentrated, concentrated group of large cap tech.” She’s confident that the theme can expand to utilities and industrials, as well as to AI adopters who are using the technology for productivity gains within their companies, in addition to semiconductors.
Read More: International stocks, AI beneficiaries to outperform, JPMorgan Asset Management