Despite an unrelenting stream of geopolitical crises and political shocks, Karen Ward believes markets remain fundamentally rational.

Speaking at J.P. Morgan Asset Management’s European Media Summit in London on 19 May 2026, the bank’s chief market strategist for EMEA argued that today’s political instability is not suppressing growth – it is actively driving it.

While investors often perceive the current environment as one of extreme uncertainty, she suggested that the prevailing political chaos is a catalyst for two distinct, growth-driving types of spending: government and corporate.

The drivers of growth: government spending

Governments worldwide are steadily increasing their spending (see Chart 1), marking a departure from the post-financial crisis era of austerity. This is driven by the need to please electorates with measures like tax cuts but more significantly by a shift toward security and self-sufficiency. Ward said governments increasingly face a delicate balancing act: “Do I please my elector or my bond investors?”

This includes enhanced military capability, sturdier energy infrastructure, and technology security. Ward pointed to the US deficit widening and Germany's recent commitment to significantly higher spending as defining moments in this trend. “Fiscal outlays are now materially higher than during much of the post-financial crisis period.”

The drivers of growth: corporate spending

Concurrently, corporate capital expenditure is booming. Initially led by US “hyperscalers” investing heavily in data centres and computing power, this trend is now broadening (see Chart 2). “Every earnings season is just about these companies and how much they're going to revise up their capex plans,” she said.

Across sectors and regions, companies are rethinking business models, strengthening supply chains, and investing in technology to improve resilience amid global instability.

This wave of public and private investment is feeding directly into economic growth and corporate earnings, providing a rational basis for elevated market valuations. Yet the economic impact of this new spending cycle is not unfolding evenly across regions.

Regional outlooks and the “cost of fear”

The US continues to benefit from resilient equity markets and strong consumer spending, buoyed by a significant wealth effect. In contrast, the European recovery has been more sluggish.

European households have accumulated vast savings since the pandemic—nearly €2trn in Germany and France and approximately £1trn in the UK—but have been hesitant to spend (see Chart 3) which illustrates the large stockpile of excess household savings accumulated since the pandemic. Ward noted that while keeping money in the bank feels emotionally safe during chaotic times, there is a substantial “cost of fear.”

Adjusted for inflation, €100 held in a bank account since 2019 would now be worth roughly €95 in real terms. By contrast, a traditional 60/40 portfolio would have risen to €122, while an all-equity allocation would have nearly doubled.

Ward noted that at the beginning of the year, the recovery in Europe was expected to gain momentum this year as inflation and interest rates fell. However, the conflict in the Middle East has created a temporary pause by affecting energy costs and consumer sentiment. She remains optimistic, citing that a prolonged conflict is in the interest of neither the US nor Iran, and she expects the European recovery story to resume once an agreement is reached.

Against this backdrop of structurally higher spending and persistent geopolitical uncertainty, Ward believes investors need to rethink traditional portfolio positioning.

Bond markets keep pressure on governments

Despite high government deficits—such as the US continuing to run deficits of around 7% of GDP—Ward believes the risks are “already in the price in fixed income securities.” Investors are already charging governments higher interest rates, with US 10-year Treasuries at around 4.5% and UK gilts at 5% (see Chart 4).

Regarding global debt sustainability for governments and corporates, Ward argued that debt is manageable if it fuels productive projects that generate sufficient nominal GDP growth to facilitate repayment. On aggregate, rising debt is not expected to hold the market back, though individual governments, such as the UK at the moment, will continue to be scrutinised by bond markets.

A shift beyond US exceptionalism

The era of “US exceptionalism” may be ending as growth broadens globally. While the US remains outstanding, corporate earnings expectations are rising elsewhere, offering better valuations on equities (see Chart 5). Referring to earnings expectations across regions, Ward noted: “Those bars are now high everywhere.”

Addressing concerns about a potential tech bubble, Ward argued that markets are now in the “deployment” phase of a new cycle. While it remains too early to determine whether current valuations are fully justified, she said the potential for a substantial increase in global profitability makes exposure to the broader tech ecosystem essential — particularly across semiconductors, hyperscalers, and software.

Alternatives gain appeal in inflation era

Investors should prepare for inflation to remain “stubbornly higher” (closer to 3% than 2%) and more volatile due to frequent cost shocks from trade wars or climate events. In such a world, traditional stocks and bonds may fall simultaneously. To build a resilient portfolio, Ward suggested including alternatives such as commodities, timber, transportation, and infrastructure, which can provide protection during inflationary shocks (see Chart 6).

Furthermore, the 15-year dollar bull market may be reaching a turning point as capital begins to be deployed more locally rather than flowing exclusively to the US, potentially leading to a slow, orderly decline in the dollar’s value.

Ultimately, Ward’s message was that investors are entering a structurally different regime — one defined by persistent fiscal expansion, elevated geopolitical risk, and higher inflation volatility. In that environment, diversification, real assets, and global exposure may become increasingly important as traditional market assumptions are challenged.

Sylvain Barrette in London

Paperjam was invited to attend the J.P. Morgan Asset Management 2026 European Media Summit in London. The latter paid for accommodation and transportation.