Animal Spirits Podcast: Talk Your Book – JP Morgan's Long-Term Capital Market Assumptions
Date: October 27, 2025
Hosts: Michael Batnick & Ben Carlson
Guest: Gabriela ("Gabby") Santos, Chief Market Strategist for the Americas at JP Morgan
Overview
In this episode, Michael and Ben invite Gabby Santos to discuss JP Morgan’s 2026 Long-Term Capital Market Assumptions (LTCMA) report. The conversation covers JP Morgan's forecasting process, key global investment themes, the future of the classic 60/40 portfolio, and how technological innovation and geopolitical shifts may influence returns over the next decade. They also explore whether US equity dominance can continue, what shifting valuations mean, and how investors should adapt to a rapidly changing landscape.
Key Discussion Points & Insights
The Purpose & Process of Long-Term Assumptions
- Regular Revision over Certainty: Ben highlights the value of regularly updating capital market assumptions rather than striving for perfect accuracy.
“I think the important thing is, is that you update these on a regular basis to take into account the changing landscape, the valuations, the interest rates, the past returns, all this stuff.” – Ben Carlson [00:51]
- Framework over Forecast: Gabby stresses that while the headline forecasts get attention, the real utility is in understanding the forces and assumptions that drive those numbers.
“I would focus less on the specific basis points for setting expectations, but more the general discussion around starting valuations, forces and … the kind of numbers that we're talking about and this is all over on average 10, 15 years.” – Gabby Santos [06:31]
Shifting Global Investment Themes
Gabby expands on three interconnected global trends influencing long-term forecasts:
- Economic Nationalism:
- Reduced global cooperation; more domestic investment.
- Focus on domestic manufacturing (semiconductors, rare earths, etc.).
- Fiscal Activism & Capex Buildout:
- Increased public and private capital spending, especially on infrastructure.
- AI Innovation & Adoption:
- Drives further investment and economic transformation, especially as labor shortages and wage pressures accelerate automation.
“These are all themes that have been building. I think they just gained even more urgency this year and truly are global phenomena.” – Gabby Santos [04:11]
The Changing Role of Geopolitical Forces
- Geopolitics, Market Noise, and Structural Shifts:
- Gabby notes short-term geopolitical events (outside major crises) rarely move markets, but structural forces (like protectionism) matter for long-term assumptions.
- Inflation: Nationalism and shifting supply chains are leading to slightly higher long-term inflation projections.
- Yield Curves: Expect a return to pre-GFC yield curve steepness.
- Stock/Bond Correlation: Heightened rates and inflation volatility mean bonds can’t always be counted on as diversifiers.
“Let’s not pin all our hopes and dreams on bonds…they're not going to work when it's more geopolitical or related to inflation or fiscal [shocks]. Then you need other stuff that's uncorrelated…” – Gabby Santos [09:39]
60/40 Portfolio and Beyond: “6040+”
- The classic 60/40 (stocks/bonds) isn’t enough; diversification should include:
- Private markets (private equity, credit, infrastructure, real estate)
- Alternatives (gold, hedge funds, absolute return strategies)
- Active management
“We’re trying to retire the 6040 and go back to a new idea of a 6040 plus.” – Gabby Santos [12:15]
The Future of Private Markets
- Growth & Diminishing Premiums:
- Private markets are still developing, but as more capital enters (especially private credit), returns are likely to decline.
- Alpha-driven areas (private equity, infrastructure) may be more resilient.
“There's just a lot more competition...That leads to just spreads getting tighter and tighter and tighter and as a result, lower returns.” – Gabby Santos [15:14]
- Data Challenges:
- Private markets lack transparent, cycle-tested data; Gabby describes their methodology, median benchmarking, and “de-smoothing” volatility.
“We do a lot of due diligence on what the best benchmark is…And then you have to make a judgment call.” – Gabby Santos [17:50]
US vs. International Stocks: Is the Tide Turning?
- Recent International Outperformance:
- For the first time in years, international stocks outperformed US stocks driven by a weaker dollar and relative valuations.
- JP Morgan expects this trend to continue over the next 10–15 years, with major headwinds for US equities coming from stretched valuations and expensive currency.
“We do still expect the rest of the world to outperform the US over the 10, 15 years.” – Gabby Santos [20:45]
- Valuation Discussion:
- Current US price/earnings ratios are historically high, leading to an anticipated annual drag of -2 percentage points compared to international peers.
- Some adjustment upwards from historic means (“reversion to trend, not mean”) is warranted given the quality and profitability of US firms, but a normalization is likely.
“It's not reversion to the mean, it's reversion to the trend…” – Gabby Santos [24:55]
Tech Innovation: Inflation and the Economy
- Competing Forces:
- Fiscal and supply chain issues push inflation up; AI and tech push it down.
- AI-enabled productivity helps counteract inflationary demographic pressures.
“Some forces pushing inflation upwards, especially economic nationalism and fiscal activism, but there are also some forces pulling inflation lower, like technological innovation.” – Gabby Santos [26:52]
- Long-Term Outlook:
- JP Morgan’s baseline outlook is for gently higher inflation than in the post-GFC lowflation era; not stagflation or runaway inflation.
The “Bubble” Question
- Gabby doesn't see current capex and innovation as bubble-like—yet. As long as investment is backed by real profitability and productivity, risks of a bust are lower. Excessive, misallocated spending would change that calculus.
“We just don't think we're there at the moment.” – Gabby Santos [31:14]
Risks to the Forecasts
- Upside Risks: Underestimating the productivity and margin impact of tech/AI.
- Downside Risks: Underestimating the required risk premium in bonds due to fiscal/ inflation uncertainty (long-term rates could be higher than anticipated).
“I think there's a risk that we're not being optimistic enough…downside, I think where we might be wrong frankly is much more around the risk premium.” – Gabby Santos [32:33]
Time Horizons and Crystal Balls
- Time Frame:
- LTCMA is designed for 10–15 years—a full market or business cycle.
- Biggest Unknown:
- The ultimate impact of massive ongoing tech capex—will it yield real productivity and returns, or mostly hype and misallocation?
“If I could look out five years, 10 years, I would want to know what ended up happening with productivity growth, what ended up happening with actually all that return on that investment.” – Gabby Santos [34:46]
US Corporate Dominance and the Rest of the World
- US Market Cap Swelling:
- The US now comprises 65–70% of global market cap, partly due to its shareholder-oriented culture (buybacks, low dilution).
- International Markets Changing:
- Europe and Asia (notably Japan, Korea, China) are beginning to adopt US-style buybacks and are increasing shareholder focus, which could boost global equity returns.
“If you wanted one thing to get excited about international markets, structurally, it's really that they have discovered the secret sauce of buybacks and of focusing on shareholders.” – Gabby Santos [37:36]
Notable Quotes & Memorable Moments
- On Forecasting Humility:
“The idea that anyone is going to get these perfectly right is probably not realistic.”
– Ben Carlson [00:51] - Geopolitics as Market Driver:
“It is shocking how little geopolitics actually matters to markets unless it gets truly terrible.”
– Michael Batnick quoting Michael Semblis [08:23] - International v. US Outlook:
“So you expect the US to lag or to underperform international markets over the next 10 to 15 years?…That is a big statement that might or might not come true.”
– Michael Batnick [22:10] - What Could Make the LTCMA Wrong?:
“There’s a risk we’re really underestimating [tech/AI productivity].”
– Gabby Santos [32:33]
Timestamp Guide to Important Segments
- 00:51 – Introduction to JP Morgan’s LTCMA & why updating expectations matters
- 03:22 – Gabby Santos joins, explaining 2026 report headline themes
- 04:11 – Three global investment themes: nationalism, fiscal activism, AI
- 06:31 – The forecasting framework and philosophy behind JP Morgan’s LTCMA
- 09:39 – Geopolitical forces, protectionism and how they show up (“diversifying the diversifiers”)
- 12:15 – The evolution from 60/40 portfolios to “6040+” (alternatives, privates, alpha)
- 15:14 – State and outlook of private markets and how the risk premium may diminish
- 17:50 – The challenge of forecasting private asset returns & volatility
- 20:45 – US vs. International equity outlook; drivers of anticipated reversals
- 22:35 – Valuation’s outsized role in long-term US return headwinds
- 24:55 – Discussing new-normal valuations and “reversion to trend”
- 26:52 – Macro tug-of-war: inflationary and deflationary forces (fiscal vs. tech)
- 29:20 – AI’s growth and productivity impacts in the forecast
- 31:14 – Is there an investment bubble? Capex, profit, productivity examined
- 32:33 – How might their forecast prove most wrong? Upside/downside risks
- 34:20 – The critical unknown: Will tech investment truly pay off?
- 37:36 – Will US equity dominance trigger competition from abroad?
- 39:49 – Episode wrap-up; the 10–15 year “scorecard” challenge
Takeaways for Investors
- Set expectations using a solid framework, not just numbers.
- Think beyond traditional stock/bond mixes for strategic allocation.
- Monitor major global themes—nationalism, government capex, and AI—as engines of change.
- Recognize both upside and downside risks of the tech boom on productivity and returns.
- Stay alert as global equity leadership could shift, especially if other markets embrace capital markets discipline and shareholder focus.
For more details, visit JP Morgan LTCMA 2026.