Market update

U.S. equity markets are heading towards their second-strongest weekly finish of 2025.

The S&P 500 (+3.8%), Nasdaq 100 (+5.2%) and small caps (Solactive 2000 +4.1%) are all heading higher. Globally, European (+3.6%), Japanese (+2.5%) and Chinese onshore (+2.4%) equities also made significant gains. Much of the market momentum seems linked to positive talks on trade and a possibility of the U.S. lowering tariff rates on China (more below).

Bond yields are heading towards a flat finish for the week, while gold (–0.9%) and oil (–2.9%) both finished lower.

The story moving markets this week was a Wall Street Journal report that the U.S. is considering extending an olive branch in the form of a trade deal with China. The report states that the Donald Trump administration is considering reducing tariffs on Chinese imports, potentially by more than half, to ease tensions with Beijing that have affected global trade and investment. President Trump indicated that any tariff decisions will come directly from him and that China was open to dialogue.

Later in the day, Treasury Secretary Scott Bessent pulled back the olive branch slightly and clarified that President Trump has not offered to unilaterally reduce U.S. tariffs on China. Bessent emphasized that neither side views the current tariff levels as sustainable, suggesting that a mutual reduction might occur. He noted that the strongest ties between Washington and Beijing are at the leadership level – with no set timeline for engagement – and that a full trade rebalancing could take two to three years.

However, China’s Commerce Ministry spokesman He Yadong stated “any reports on development in talks are groundless” and that the U.S. needs to show “sincerity” if it wants to make a deal.

These developments further tangle the complex geopolitical thread that has been spinning since April 2. We (and the rest of Wall Street) don’t have an edge in determining what trade deals will be made or when. But considering the persistent tension between the world’s two largest economies, we present three opportunities below where we identify mispricings that could mean value for investor portfolios.

Spotlight

1. Domestically focused European corporations: As tariff uncertainty grows, markets that are relatively immune become more attractive. Close to 50% of European equity revenue comes from within the region, meaning that those revenues are relatively more insulated against fluctuations in external trade.

The revenues sourced within the region become more important when you consider that for the first time in a long time, Europe is becoming a domestic growth story. Germany’s 500-billion-euro fiscal stimulus package is significant, exceeding 1% of gross domestic product (GDP). For perspective, that’s larger than the U.S. fiscal response amid the COVID-19 pandemic on a relative GDP basis. Our estimates suggest that the package could lead to an annualized GDP increase of 0.6% to 0.8% for Germany over the next three years, spilling over to the European region and boosting growth by 0.4% to 0.5% per year during that period.

We think the boost to growth could lead to sustainably higher multiples for European equities towards 14.5x forward earnings from roughly 14x now, which would still represent a close to 30% discount relative to current U.S. valuations. What’s more, as we focus on increasing income in portfolios, European equities offer a dividend yield around 200 basis points above the S&P 500.

The kicker comes in the form of a historically ignored factor for U.S. investors: foreign exchange return. While we do not foresee the dollar losing its reserve currency status soon (nearly 90% of all Forex trades involve the U.S. dollar), capital will likely continue its shift at the margin out of dollars and into other global markets amid downside USD risks. While the Euro Stoxx 50 has returned about 4.5% year-to-date in local currency terms, the euro’s appreciation against the dollar has led to gains in the mid-double digits for unhedged dollar-based investors.

2. Municipal bonds for tax sensitive U.S. buyers. The Bloomberg Municipal AAA yield curve has steepened significantly, with the 30-year yield increasing close to 70 basis points year-to-date, reaching levels not seen since the global financial crisis. This steepening, along with the absolute yield on the Bloomberg Municipal bond index, presents a compelling investment case.

It’s not just the absolute yield but also the relative yield versus Treasuries (Muni bond yield / Treasury yield of similar tenor, where a higher ratio is better for munis) that stands out as attractive. Both the 2 and 5-year parts of the curve are trading cheaply on 1, 5 and 10-year averages, while the 10 and 30-year parts are attractive relative to 1 and 5-year averages.

Lastly, the inflation-adjusted yield in munis stands out as particularly compelling. The chart below shows the yield for the 10-year AAA callable municipal bond index and the 10-year break-even rate (a market measure of inflation over the next 10 years). The orange bars represent the spread between the two and currently, that spread (or compensation above inflation expectations) is in the 99th percentile since 2010, meaning your estimated “real yield” on a 10-year muni is at one of the highest levels in a decade and a half.

What’s driving the cheapening in municipal bonds is market concerns over their tax-exempt status.

Municipal bonds are debt securities issued by states, cities or other local government entities to fund public projects. The interest income from these bonds is typically exempt from federal income tax (the federal government doesn’t tax municipalities and vice versa). This tax exemption makes municipal bonds attractive for individuals in higher tax brackets.

The U.S. government is seeking ways to limit its deficit while passing an extension of the Tax Cuts and Jobs Act (TCJA). The House of Representatives voted to adopt the Senate-amended Fiscal Year (FY) 2025 concurrent budget resolution, allowing for legislation to add $5.8 trillion to deficits through FY 2034. Some chatter in Washington has floated taxing municipal bond interest to raise government revenues. Given that the government only misses out on roughly $30 billion per year in revenue by not taxing muni bonds, changing that policy wouldn’t make a dent. Our base case remains that municipal bond interest will remain exempt from federal taxes and can continue to be a ballast and diversifier in portfolios.

3. Private equity secondaries: Dealmaking activity (Mergers and Acquisitions and Initial Public Offerings) has been more muted than the street was expecting coming into the year, in part given uncertainty post-Liberation Day, still elevated rates and equity market volatility. The higher probability of prolonged uncertainty has created a cloudier outlook on the pace of a dealmaking recovery in the near-term. This is coming at a time in which private equity assets are aging: The median holding period for buyout-backed exits has risen to roughly six years, and global buyout distributions as a percentage of net asset value (NAV) are at their lowest since 2009. These two conditions together are likely to drive an increase in “non-traditional” exits, such as secondaries, which can provide essential liquidity in these markets.

Secondaries are transactions where investors buy and sell existing stakes in private equity or other alternative investment funds. They can be LP-led (a limited partner sells its commitment in a fund to a secondary buyer) or GP-led ( a general partner sells one or more portfolio companies to another vehicle). Secondaries generally offer investors portfolio diversification by allowing investors to acquire interests in existing funds across different vintage years and managers, mitigating risks associated with single fund investments. Additionally, they help bypass the early-stage “J-Curve” effect, enabling investors to potentially see returns sooner by investing in more mature funds. These transactions also often come at a discount to the net asset value. These factors combined present the opportunity for secondaries to generate attractive risk-adjusted returns.

For more details on how these options may fit in your portfolio, reach out to your J.P. Morgan advisor

All market and economic data as of 04/25/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).

Holders of foreign securities can be subject to foreign exchange risk, exchange rate risk and currency risk, as exchange rates fluctuate between an investment’s foreign currency and the investment holder’s domestic currency. Conversely, it is possible to benefit from favorable foreign exchange fluctuations.

Index definitions:

The Solactive United States 2000 Index intends to track the performance of the largest 1001 to 3000 companies from the United States stock market. Constituents are selected based on company market capitalization and weighted by free float market capitalization.

The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the largest 3,000 U.S. companies representing approximately 96% of the investable U.S. equity market.

The S&P 500 Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.

The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

The Magnificent Seven stocks are a group of influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

The Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, Tesla) classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).

The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market.

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bonds are subject to interest rate risk, credit, call, liquidity and default risk of the issuer. Bond prices generally fall when interest rates rise.

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

RISK CONSIDERATIONS

• Past performance is not indicative of future results. You may not invest directly in an index.
• The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.
• Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.
• In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.
• When investing in mutual funds or exchange-traded and index funds, please consider the investment objectives, risks, charges, and expenses associated with the funds before investing. You may obtain a fund’s prospectus by contacting your investment professional. The prospectus contains information, which should be carefully read before investing.
• Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the alternative minimum tax (amt).
• International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in international markets can be more volatile.
• Investments in emerging markets may not be suitable for all investors. Emerging markets involve a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in emerging markets can be more volatile.
• Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
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• Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.
• Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with the each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team.
• As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
• For informational purposes only -- J.P. Morgan Securities LLC does not endorse, advise on, transmit, sell or transact in any type of virtual currency. Please note: J.P. Morgan Securities LLC does not intermediate, mine, transmit, custody, store, sell, exchange, control, administer, or issue any type of virtual currency, which includes any type of digital unit used as a medium of exchange or a form of digitally stored value.
• The prices and rates of return are indicative, as they may vary over time based on market conditions.
• Additional risk considerations exist for all strategies.
• The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
• Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.