J.P. Morgan Asset Management’s latest Global Equity Monitor highlights divergences in equity markets—and with that, an opportunity for investors to rethink their global strategies.
Headline Weakness, Underlying Divergence
The MSCI World Index posted a modest 3% decline in Q1 2025. But behind the aggregate figure, regional performances diverged markedly. U.S. equities underperformed, hampered by growing trade policy uncertainty and fading hopes for deregulatory tailwinds. In contrast, European markets were supported by proactive fiscal policy—particularly increased defense and infrastructure investment—leading to relative outperformance.
Rotation Underway: Sector and Geography
The report highlights a clear shift in market leadership. The dominance of U.S. mega-cap tech—the "Magnificent Seven"—is fading, with defensive and income-oriented sectors such as energy, utilities, and consumer staples taking the lead. This trend has benefited non-U.S. markets, which have lower tech exposure and higher weightings in low-beta sectors.
Earnings Revisions: A Barometer of Shifting Sentiment
Consensus earnings expectations have come under pressure in the U.S., while Europe and Japan have seen more resilient forecasts. This reflects a recalibration of investor expectations amid uneven policy execution and a shifting macro backdrop. The UK, with its more defensive equity profile, may be relatively insulated from these downgrades.
Margins Elevated but Vulnerable
Profit margins remain elevated globally, particularly in the U.S., where 2025 projections suggest new record levels. However, trade friction and cost pressures pose a challenge. A prudent tilt toward quality—companies with strong pricing power and resilient cash flows—appears essential in preserving profitability.
Global Income Becoming a Strategic Lever
Income is emerging as a critical component of total return. Outside the U.S., dividend and buyback yields are improving—most notably in Europe and Japan. High-income equities, which currently trade at a discount, offer both downside protection and diversification in a volatile macroeconomic environment.
The current environment favors active global allocation. Regional and sector rotation, margin risks, and evolving policy narratives make a compelling case for bottom-up security selection and cross-border diversification. J.P. Morgan AM’s message is clear: opportunity lies in anticipating change—not chasing yesterday’s winners.
