2026 Corporate Compass: Market resilience, AI and geopolitics

[Music]

Rama Variankaval: Hello, everyone. Welcome to J.P. Morgan's Making Sense. I am Rama Variankaval. I'm responsible for the corporate advisory practice here at J.P. Morgan. I'm joined by my colleague, Evan Junek, who is the Global Head of Corporate Finance Advisory at J.P. Morgan. It's the time of the year where we publish our annual report called Corporate Compass. It's the 15th edition coming out this year, and this is the third time Evan and I are getting together to talk about it in this podcast format. So welcome, Evan.

Evan Junek: Thanks so much for having me.

Rama Variankaval: Why don't we start by actually giving our listeners a little bit of background on Corporate Compass?

Evan Junek: Happy to. So, the Corporate Compass is a document we have been producing for about 15 years now. This is our 15th edition with a focus on really the year ahead in the context of the year that has just been completed. And topics are pretty wide-ranging, everything from capital markets to political trends, to even some fun stuff. And we'll talk about that, I think,  in today's discussion. Importantly, the target audience is pretty wide. Board members, C-suite, team members, you know, treasury teams, um, really anybody who's interested in understanding a little bit of  a broad view of the things that we have on our minds, that frankly, we believe our clients have on their minds, I think are kind of captured in this document. And I think importantly, we're gonna talk a lot about the U.S. version of the document today, so you'll hear, frankly, a pretty North American oriented, conversation, but we actually also produce a European version and an Asian version for clients in those regions or for those who might be interested with the trends in those areas.

Rama Variankaval: All right, fantastic, Evan. So just to be clear for our listeners, we are recording this podcast at the very end of 2025, right before the holidays. Um, so when we talk about this year, that means 2025. When we talk about next year, that means 2026 for the avoidance of any doubt. So, I feel like I've said this all three years we have been together. There's a lot to talk about. Definitely true this year. There's no question, 2025 was quite an interesting year. If I think back to the beginning of the year, the mood in the markets was quite optimistic. The expectations was that the year will turn out to be a very good year for the markets. And as we sit here today, it feels like we are, in fact, looking at a year that was quite good. However, it also feels like we took the scenic route here. Lots of ups and downs. Perhaps we start there. Tell us about what happened through the course of the year in some of the key markets.

Evan Junek: Absolutely. Happy to do that, Rama. So, I would maybe describe it less as a scenic route and more as a rollercoaster ride, uh, with its ups and downs. Just to give the listener some context, you know, we've seen everything from the broader market, the S&P 500 down as much as 15% year to date this year. That was in April following the tariff tantrum, as it's often called, following Liberation Day, and of course, the significant amount of uncertainty that was introduced in the market in conjunction with Trump's reciprocal tariffs at the time. The market has been incredibly resilient over that time period. We're now looking at more like up 15% on the market year to date. Of course, that number could change a little bit as we round out the last week or so of the year. But again, resiliency has been the name of the game, and I think it's hard not to start talking about where we've been over this year without quickly talking about what's been a main driver of that resiliency, and it's really technology and more specifically AI.

Rama Variankaval: Got it. Um, yeah, AI clearly, and also geopolitics, which you alluded to, right, I assume, are the two primary factors. Why don't we start with AI? Um, it does feel like everything I listen to, every podcast I listen to, AI seems to be the dominant factor. If you look at the data, it feels like we, for a period of several years, we were in a very anemic investment cycle in corporate America, and now that's changed, again, largely thanks to AI. So why don't you talk about that and what you think that means for both growth for the risk?

Evan Junek: Yeah. So, just zooming out for a second, you're absolutely right, the, the profile of U.S. companies has evolved substantially over the last 20 to 25 years, and in fact, if you track capital spending over that time, we've generally directionally seen actually a decline in capital-intensive spending by U.S. companies. Not entirely surprising, right? If you think about the evolution of our economy as a whole, becoming more service-oriented, offshoring a lot of our manufacturing, things that we'll come back to when we start to talk about the geopolitical aspects of the current backdrop. But over the last few years, we've seen a radical turnaround of that trend. To give you some sense, over the last five years, we've seen S&P 500 CapEx levels grow at almost 13% year over year. That's extraordinary by almost any measure. And a significant majority of that capital spending has been coming from tech, and again, more specifically around this AI narrative. And, you know, again, you go back to this narrative of resiliency, if you look at what's happened to the underlying growth trends in the U.S. economy, more than half of growth in the first half was driven by that same theme of AI and tech. And so as you think about where we are today, especially as we enter into the new year, we're coming off a period where the U.S. economy has become increasingly reliant, at least in terms of growth trajectory on that tech and AI narrative. And I think that's gonna be a major theme of 2026, effectively how to use, sort of simplistic terms, hopes and dreams will ultimately transition into reality, right? What's gonna happen when these data centers get completed and turned on? What happens when power demand starts to increase as a result of those data centers? Some of these things we're already starting to see, and especially when we translate that into capital needs and the impact on capital markets, as we'll talk about in a few minutes, the impact could be quite extraordinary.

Rama Variankaval: Right. It does feel like the compact that corporate America had with shareholders has changed dramatically in the last couple years, right? It used to be that, um, invest for some level of base growth, uh, improve margins through efficiencies, buy back stock, and then provide a return to the shareholders, run a balance sheet that is, has, you know, not too much leverage, not too little leverage,  investment-grade type rating. That seemed to have been the compact that large companies had in the U.S. at least, with the shareholders, and that's changed completely. Now it's about invest for growth, take on all of this risks you're talking about, going from these hopes and dreams to kind of what actually happens. But for this moment at least, the shareholders seem to be okay with it, right? The equity valuations are quite high. Why don't we talk about that? You know, what do you see, uh, when you look at the equity valuations in the U.S. and perhaps, you know, then zoom out and talk about the rest of the world as well?

Evan Junek: Great question, Rama, and I'd say maybe a few different things about what we've seen in the equity capital market specifically and around valuations, and then maybe I'll speak, speak just a minute around risk perception in the market as well. To state the obvious, and again, we've explored this extensively in our corporate compass document, valuations on an absolute basis are quite extraordinary today, certainly well into the top quartile from a historic standpoint going back decades and decades and decades. Again, we're also in somewhat of an extraordinary period of time in terms of those capital investments, in terms of the transformation that technology may have and the impacts of that technology may have on the broader economy. And, you know, there's a lot of ways to look at it. Obviously, the debate of the bubble is alive and well. We're not gonna answer that question on this podcast, but what I would say is we look at data that evaluates the longer-term trends we've observed from valuations of this level. And I think if you look at the overall, let's say, S&P 500 valuations today, historically the data would suggest that the performance from here, especially over a longer term, say 10 years, is pretty modest, close to zero. So, we sort of be flat from a point in time looking forward. But if you actually look at the equal weighted index, taking away the significant concentration of a handful of companies we see in the market today, the story is actually a little bit different, that we could actually continue to see high-single digit kinds of returns over the long term. Now, of course, this is all just sort of fun with numbers. I think more importantly, what we see in the market today is very low-risk premiums. That's actually something we see both in the debt and the equity markets today. So obviously we've been talking about the equity markets. If you think about equity risk premiums, we see equity risk premiums by some measures as low as they've been in 20 years, and in the debt capital markets, both in the high grade and the high yield space, we see spreads that are well into the top decile in terms of tights, so historically low spreads in both markets there as well. Zooming out a little bit, the U.S. does continue to be a area of exceptionalism, trading, you know, call it, two to three turns on an EBITDA multiple basis above the global market, and even more above, uh, you know, many of the other regional markets like the UK and, and, uh, Latin America and so forth.

Evan Junek: On the debt side, we're actually seeing a more radical transformation in terms of the makeup of the potential issuance we're gonna see in the year ahead. Our own analysis suggests that about one in three dollars of high grade debt issued next year may come from AI and technology linked companies. That's a radical shift from where we've been historically, where those sectors have historic- have really not typically been major issues of debt in the market. These companies have very underlevered balance sheets. Many of them in fact are still net cash. And so they have a tremendous amount of capacity to come into the market and raise meaningful amounts of capital at very low cost. And it's certainly possible that that could change the, the profile and the makeup of the, of the, of the market in the year ahead.

Rama Variankaval: Yeah. And that very last point, I know we have this chart in the corporate compass document, which I thought was quite telling. If you go back about 10, 12 years, look at the relative multiples, EV to EBITDA multiples across different regions; they're quite tightly packed, maybe within a turn or so of each other.

Evan Junek: Yep.

Rama Variankaval: But they have dispersed quite dramatically over the course of the decade, and the U.S. has definitely taken off.

Evan Junek: That's right.

Rama Variankaval: Again, you know, technology, AI being a big driver. Your comments on the risk premium are a good one. Clearly the traditional measures of risk premia all point to quite low risk premiums, but I think the, the fact that we still debate about, uh, bubble and the possibility of it bursting, a recession coming, et cetera, suggests that perhaps there are some non-traditional areas where risk premium is not quite low, and we haven't really (laughs) found what those are or focus on those. So, time will tell where we are. So, again, AI promise of growth seems to be embedded in current equity valuations. No doubt about that. And as we said, that's a big part of where all of us spend time thinking about this year, and likely we'll spend next year thinking about. But the second major theme you mentioned at the very beginning, geopolitics. Let's talk about geopolitics. Again, a lot happened this year, whether it was in the trade and tariff-related areas, whether it was kind of domestic policy as it pertains to tax credits, et cetera, whether it was kind of the standoff with China, what do you think are the key things to focus on?

Evan Junek: Yeah. Couple things we highlight in the report. The first is, putting aside the specifics of tariffs and individual policies, one clear theme we've seen this year is the use of executive orders to facilitate change and to facilitate policy. To give people some context, we've seen more executive orders in 2025 than we saw in Trump's entire first term. So, the pace of those executive orders has increased dramatically. And beyond just an observation that this is obviously sort of a different technique in terms of general governance, what it also means is it creates a lot of more volatility in terms of policy, not just because of the velocity of executive orders themselves, but the resulting challenges to those executive orders go through the judicial system and create more volatility and uncertainty about the actual implementation of those policies. So as a general matter, I think companies across sectors are now increasingly getting used to the volatility of policy and how that impacts their business models. And I think people are starting to think about their decision making, whether that be on trade, whether that be on fundamental investment strategies a little bit differently, and keeping in mind sort of the need to be nimble around future investment strategies with respect to policy specifically. And some, some industries have been living with this, frankly, for a while. I think energy is a great example of that. But energy's also a great example of a sector that we've seen be quite resilient in the face of the fundamental economics of those businesses. And I'll highlight one specifically which is in the renewable sector. The renewable sector has been pretty beaten down over recent years with a lot of that policy volatility, but this year, the demand for power, the backlog from things like the AI build-out has clearly provided an underpinning of support for that industry, and we've seen that sector outperform the broader market by almost 40% year-to-date.

Rama Variankaval: Specifically, the renewable sector?

Evan Junek: Correct.

Rama Variankaval: Yeah.

Evan Junek: Correct.

Rama Variankaval: Yeah. I guess energy is clearly one area where both of these themes, the theme of AI and the theme of geopolitics are intersecting quite dramatically. And the need for incremental load in this country, again, largely driven by AI, but not exclusively driven by AI. We're talking about onshoring manufacturing, uh, we're talking about, electrifying other things, whether it's heat or transport, clearly want to watch for. And the other chart I know we have in the report, which is an interesting one and I'm spending a lot of my time talking to clients about is, what does all of this mean for retail electricity bills? The question for affordability of electricity is top of mind, and making sure we have the right policies to ensure that retail electricity prices do not get out of hand is, uh, I know top of mind for a lot of our policymakers, so clearly a space to watch out for.

Evan Junek: Absolutely. I don't think we can leave the topic of geopolitics without at least touching on China.

Rama Variankaval: Absolutely.

Evan Junek: The China dynamic as well. And the point we highlight in the report is the evolving interrelationships or maybe the evolving race, if you will, between China and the US. I would describe it as historically, China has been more oriented as being the leading manufacturer of the globe. They've been on that path for many, many years, and you can see that very clearly in the relative employment levels of manufacturing in the U.S. versus China. In fact, we see sort of an inverse relationship as U.S. lost manufacturing employment, it really was gained in China. But interestingly, what's now taking place is what we might be describing as sort of an R&D race. Who can be in that position, a pole position of innovator for the globe? And the U.S. has long maintained supremacy in that regard, and obviously things like the AI dynamics are just a sort of manifestation of that trend, but even those trends appear to be changing. And when you look at trends like the number of science and engineering doctoral degrees awarded in China versus the U.S., China has now, for more than a decade, produced more doctorates in science and engineering than the U.S., and their numbers continue to accelerate. Conversely, if you look at even the medical field, new clinical trial starts have increased substantially in China over recent years. Not quite surpassing the U.S. just yet, but neck and neck, after coming from effectively zero 10 years ago. So really a changing landscape in terms of not just the manufacturing aspects of global trade policy, which of course I think many are very focused on, but this sort of evolving aspect of R&D and technology, very much top of mind.

Rama Variankaval: That is the challenge, right, from a U.S. perspective. Where China has built out a tremendous lead in manufacturing and is neck-to-neck on more of the, you know, IP, R&D type things. And if the U.S. and US-based companies want to counteract that and to not be left behind, I think, uh, it's going to be quite the challenge, to which thinks perhaps a good pivot. What do you see companies actually doing? You know, we as bankers, we look at capital formation-

Evan Junek: Yep.

Rama Variankaval: ... right? And to try and figure out, what do the trends in capital formation tell us about what the future might look like? So, why don't we switch to capital formation and, uh, corporate behavior?

Evan Junek: Yeah. Oh well, I think one of the most insightful points that we've observed in the capital markets this year is the continued preference for scale amongst equity investors. And this is not, uh, I would say a new theme. It's actually a trend we've seen emerge over the last kind of five to seven years, but the trend continues to persist and in many cases widen in terms of the premium we observe for large companies over small companies. Just to give you some sense, the median, EV to EBITDA multiple, so median EBITDA multiple of a large company in the U.S. from the S&P 500 is about 40% higher than the median multiple of a small cap company in the S&P 600. Equally amazing is that that trend of the premium for scale is evident in every single sector across the market. So, this is not something we see just in one industry or another, which is again, maybe a little bit more of a theme when we've talked about the premium for growth in past years. The premium for scale is something we see very consistently across the board.

Rama Variankaval: It feels like, you know, there is a winner take all phenomena in every sector, and for those who have, who have subscale businesses, there is a real kind of, you know, dilemma or a choice to make. Do you scale up or do you do something different, right?

Evan Junek: That's right.

Rama Variankaval: And I know we talk about that in, uh, in the report as well.

Evan Junek: We, we talk about it as going big or going private. And we actually have seen the characterization or the profile of M&A evolve a bit this year, we believe is in part, due to this trend, we've seen more companies participate or pursue transformational transactions. We think about transformational transactions in the context of sort of the relative size of the acquired entity relative to the acquirer. And we've also seen go privates, uh, and the overall volume of go privates increase as well. So, it seems as though companies are pursuing or being proactive in the context of exactly that dilemma, right? This idea of do you take advantage or do you try and pursue that move into scale, so you can take advantage of it? Of course, there's kind of a flywheel benefit to that exercise, right? That is, you say you get bigger, you get the premium valuation, you have currency that's more valuable. You can then acquire that next opportunity, you get bigger, rinse and repeat, right? That idea that the big can, get bigger and continue to get bigger. Or do you just take yourself out of the, out of the limelight, so to speak? And especially if you're dealing with maybe some, you know, disruptive forces, maybe from technology that are gonna transform your business over time, perhaps it's better to do that transformation in the private sphere and then, reemerge into the public markets once you've, once you've got your, uh, your plan figured out.

Rama Variankaval: Yeah. And that, you know, it further accelerates the trend we have seen for a long time now in the US, but also in the other developed markets of the number of public companies continuing to shrink.

Evan Junek: Yes.

Rama Variankaval: Increasingly, capital formation happening in the private world. It's quite different in the emerging markets. You know, China and India and places like that, there is still a lot more companies going public. So, it's a interesting, again, divergence, if you will, in capital formation trends.

Evan Junek: And I, and I'd say that's a good reminder. I'm sure the listener now has probably realized that we've given a lot of perspectives from the U.S. orientation, but as we've evolved this work, we've increasingly focused on separate versions for Europe and separate versions for Asia as well. So, if you haven't seen those, do reach out to your J.P. Morgan banker and we can get you the appropriate version accordingly.

Rama Variankaval: Fantastic. There was another trend actually you talk about in the report in Corporate Compass, at least in the, in the U.S. version, which at least at first glance, seems a little counterintuitive compared to what you just talked about, about the value of scale, which is, uh, increasing trends in corporate separations, or what you call corporate clarity. How do you juxtapose these two things? Why is it that we are seeing more and more corporate separations happening while at the same time, we see that scale gets a premium valuation?

Evan Junek: Yeah. You're absolutely right. We've actually seen an uptick in the number of separation announcements we've observed this year. And specifically, if you actually just focus on the largest companies, the S&P 500, for instance, we've seen the highest number of separations announced this year that we've seen in a decade. So you're spot on that we've actually got two sort of counterbalancing forces taking place in the market today. We've got this pronounced premium for scale, coupled with a focus on corporate clarity. And we reconcile those two notions with the idea that the market is really seeking focused scale. It's seeking the ability to go out and be the biggest winner takes all to use your words in your specific sector or area of expertise. And that investors are seeking large companies with pricing power, with strong balance sheets, with significant financial flexibility. And they can make their own portfolio of the kind of exposure that they're looking for with a lot of confidence. And so that notion of focus scale really does dominate the market in our view today.

Rama Variankaval: Fantastic. Look, I think it's, uh, fair to point out that we didn't really use AI in creating any of the main charts in the Corporate Compass report. But we did have some fun and we included one page at the very end. And what we tried to do was use some of these large language models to create news outlets headline or front page, if you will, at the end of 2026. To see what AI thinks might be the headlines a year from today, right? And we played around with a few different iterations. Anything from that exercise that, you know, sticks in your mind?

Evan Junek: I think it's noteworthy that even without, uh, having that, the AI sort of take in some of our themes from this year, the, the things that popped out at the end of next year actually dovetail nicely with a lot of the themes we've talked about here. The intersection between AI and policy comes to the fore in a number of the sort of little mini articles that it produced. I think one notable one that I thought was quite novel, was the idea that there may be a continued boom in GDP, but a decline in tax receipts. Because the kind of work that's getting done maybe isn't as easily "taxable," because it's being done by AI, because it's being automated. So, the production of GDP is high, but tax receipts might fall, as one kind of illustrative example. Sort of an interesting way in which AI has sort of taken these ideas of that, again, policy, with the impact of a shifting technological landscape.

Rama Variankaval: Fascinating. Evan, again, I think yet another great addition of Corporate Compass. Hopefully, all our readers will, uh, enjoy it. It's data rich as always. The insights are hopefully helpful as you plan your future and reach out to your J.P. Morgan banker if you have questions, thoughts, comments. We always look forward to hearing from our clients. So, thank you, Evan.

Evan Junek: Thanks, Rama. I really appreciate the conversation and to the listeners, have a great year and look forward to catching up in 2026.

Rama Variankaval: Thank you.

Voiceover: Thanks for listening to ‘What's the Deal?’ If you've enjoyed this conversation, we hope you'll review, rate, and subscribe to J.P. Morgan's Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.  To stay ahead of the curve, sign up for J.P. Morgan's In Context newsletter, packed full of market views and expert insights straight to you. To subscribe, just visit jpmorgan.com/in-context. This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument.

© 2026 JPMorgan Chase & Company. All rights reserved.

[End of episode]