Why JPMorgan says the international stock story still has legs

By Jules Rimmer

JPMorgan recommends value plays, international and emerging stocks

International stocks outperformed their U.S. peers by 12% in 2025 and are already 8% ahead in 2026 so far

JPMorgan said a combination of solid growth and well-behaved inflation are producing a Goldilocks set-up for stocks to flourish.

Aided by a weakening dollar, Mislav Matejka projects a broadening out of equity performance to small and mid-caps and a continued strong showing from international ACWX and emerging markets EEM. Matejka's report, published Monday, observes that after outpacing U.S. stocks SPX by 12% in 2025, international markets are already beating them by 8% in 2026 so far, a trend he believes has legs.

Backing up this view, Matejka identifies a significant valuation differential in favor of emerging and international stocks as well as "extreme positioning" with a still elevated concentration in the Magnificent Seven grouping of stocks.

While acknowledging there are geopolitical risks stemming from, say, an escalation in hostilities with Iran, that could disrupt and destabilize markets, any dips should prove to be buying opportunities, the report says.

Fourth-quarter earnings exceeded expectations, current activity momentum is "robust" and forecasts for 2026 are supported by fundamentals like the Institute for Supply Management manufacturing at three-year highs in the U.S.

Still, Matejka and team find no evidence of overheating or increasing inflationary pressures. In fact, Matejka reckons inflationary pressures are softening and with slowing wage growth, this should keep the Fed on an easing bias be supportive for lower bond yields .

Energy prices and inflation are well-behaved at present

If, as the report posits, the dollar continues its weakening trend then Matejka calls for a shift in market leadership in the US, favoring value stocks while, naturally, boosting returns from international shares listed in different currencies.

The Mag 7 dynamics concern Matejka, though. Despite its strong earnings and the big, highly-publicized capex outlay, this cohort of stocks has stalled and is falling behind the AI sectors in other regions. While the group has already derated to its cheapest, forward price-earnings multiple in a decade, JPMorgan worries that this fashion will continue as investors recognize that the business models are changing.

If the Mag7 cohort fails to reassume market leadership then Matejka posits the U.S. index as a whole will be unable to drive world markets either.

It's worth noting, however, that JPMorgan's inflation expectations are predicated on a bearish forecast for Brent (BRN00). The commodity team thinks the current levels are driven by temporary supply disruptions and a pickup in January demand from colder temperatures and they believe the right price for Brent is some $7 to $10 lower. A conflict in Iran would change this scenario quite swiftly.

-Jules Rimmer

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02-23-26 0519ET