Catenaa, Friday, October 23, 2026- JPMorgan says inflation shocks could occur nearly twice as frequently as historically, reducing the benefits of stock-and-bond portfolios.
JPMorgan Asset Management, in its flagship report, Long-Term Capital Market Assumptions for 2027, says it assigned a 12.5% weight to periods of higher inflation uncertainty when constructing its risk projections, double the 20-year average.
“Indeed, we expect inflation shocks to occur nearly twice as often as they would have historically. Investors will likely demand greater compensation for taking on those risks,” JPMorgan said.
The report said it assigns a 15% weighting to negative demand-side shocks, in line with the long-run probability but higher than the average over the past 20 years.
“We expect stock-bond correlation will remain positive and may continue to drift higher over our investment horizon,” JPMorgan said.
The report said this aligns with the upward move in both realized correlations and correlation forecasts since the 2023 LTCMAs; it projects a 34% correlation between global equity and US aggregate bonds.
But that average masks the underlying instability of these correlations. They can turn negative during negative demand shocks and positive — at times quite positive — during negative supply shocks.
Rising domestic investment and competition for scarce resources could increase supply pressures. The report nevertheless keeps its average long-term global inflation forecast unchanged at 2.6%.
The bank pointed to the inflation-driven market turmoil of 2022 as evidence that government bonds may not always protect portfolios during stock-market declines. JPMorgan warned that investors who rely heavily on long-duration bonds could face greater losses when rising prices hit both markets.
“Yet bonds continue to play an important role in portfolios, lowering overall portfolio volatility. We still expect high-quality fixed income to have the lowest correlation to equities among liquid assets,” JPMorgan said.
JPMorgan recommended broader diversification beyond traditional stocks and bonds. The report identified gold, real assets and selected alternative investment strategies as potential ways to reduce portfolio sensitivity to different economic shocks.
“A USD balanced portfolio with a 30% alternatives allocation offers returns of 7.50% and, importantly, a Sharpe ratio 21% higher than a public markets-only portfolio,” JPMorgan added.
