JP Morgan Guide to Markets Oct2026
(This is for information purposes only. This should not be construed as a recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
(This blog is special because some of the charts are explained in detail)
JP Morgan Asset Management publishes a comprehensive presentation every month end, containing various slides on global markets, especially those relating to the US markets.
This is a very useful and informative guide for financial market professionals or FMPs. This "JP Morgan Guide to the Markets" can be accessed here. The following are some of the highlights / images presented in this guide: all the data are at the end of 30Oct2026:
Chart 1 showing price index of S&P 500, includes forward PE, dividend yield and Treasury yield >
as of 31Oct2026 >
7,580 index level
18.4 forward PE
1.40% dividend yield
4.90% US Treasury yield
as of 24Mar2000 >
1,527 index level
25.2 forward PE
1.40% dividend yield
6.20% US Treasury yield
Chart 2 showing PE of top 10 and remaining stocks is S&P 500, also shows the weight of top 10 companies in S&P 500 and their share of earnings (past 12 months) >
Tweet thread 30Oct2026:
Market cap weight of Top 10 stocks in S&P 500:
40.6% Sep2026
35.8% Sep2024
18% 2015
21% 2005
27% 2000 (Dotcom Bubble)
18% 1995
21% 1985
Market cap weight of Top 10 stocks in S&P 500 dropped significantly from 40.6% in Sep2026 to 38.9% in Oct2026.
The early trends of Nov2026 clearly indicate this is likely to fall further (hint: Nasdaq Composite fell 5.5% on 05Nov2026, due to fears of AI investments slowing down after the Democratic Party won both Houses of Congress in 03Nov2026 mid term elections in the US).
The nearly historically high concentration of 38.9% market cap weight of top 10 stocks in S&P 500 needs some context.
In addition to their historically elevated share of S&P 500 market cap, the top 10 stocks accounted for 36.6% of the index’s trailing 12-month earnings as of Oct2026, a level near its historical peak.
Market concentration risk is very high for S&P 500 index. Passive investors need to be aware of this phenomenal change in the structure of the index.
Chart 3 showing Performance of Mag 7 stocks vs S&P 493 >
Mag 7 or Magnificent 7 stocks are:
Alphabet
Amazon
Apple
Meta (Facebook)
Microsoft
Nvidia
Mag 7 stocks have significantly outperformed the S&P 493 and S&P 500, driven by strong technology-led returns.
Mag 7 earnings growth remains substantially stronger, forecast at 55% in 2026 versus 25% for the S&P 493.
Look at the chart for Mag 7 outperformance for 2021, 2023 and 2024.
Broad-based recovery: Economic growth benefits most sectors and income groups, with gains spread across businesses, employment and consumers.
K-shaped recovery: Different segments move in opposite directions—technology and asset owners prosper, while lower-income households and vulnerable sectors lag.
While years 2022, 2023, 2024 and 2025 show that it is mostly K-shaped recovery in the US economy, driven mainly by Mag 7 stocks.
But 2021 is kind of benchmark for broad based recovery, with both S&P 493 and Mag 7 doing very well (post-COVID 19 recovery), though Mag 7 outperformed the rest.
2021 context: Reopening, stimulus and pent-up demand drove a broad-based corporate earnings rebound, benefiting the S&P 493 alongside Big Tech.
Chart 4 showing S&P EPS growth and its sources >
Historically, the biggest contributor of EPS growth (between 2001 and 2025) for S&P 500 is revenue growth (5%), followed by margin expansion (2.4%) and share count (1%).
But year 2026 (forecast) is different with margin expansion becoming the biggest contributor (19.8%) of EPS growth.
In contrast to the historical period, share count in 2026 has increased, as Big Tech companies are issuing more equity capital to support AI buildout (earlier they were doing share buybacks hugely).
AI buildout is investments by companies in developing artificial intelligence, such as data centres and others AI infra.
Chart 4 above is explained with a following hypothetical example:
EPS growth breakdown or sources of EPS growth >
EPS (Earnings Per Share) is broken into three components because a company's earnings per share can increase for only three fundamental reasons:
1) It generates more revenue.
2) It keeps more profit from each dollar of revenue (higher margins).
3) It has fewer shares outstanding.
Note: Due to share buybacks / repurchases, shares outstanding comes down -- less number of shares means EPS growth. On the other hand, if share count increases, EPS comes down.
The mathematical relationship explains it.
EPS or earnings per share = (Revenue × Net Profit Margin) / Shares Outstanding
... since, net income or net profit = revenue × net profit margin
So, the three sources of EPS growth are:
> revenue growth
> margin expansion (net profit margin)
> changes in shares outstanding
The EPS breakdowns helps distinguish between high-quality and potentially weaker earnings growth.
> EPS growth driven by revenue = genuine business expansion
> EPS growth driven by margins = improved efficiency or pricing power
> EPS growth driven by buybacks = financial engineering or capital allocation (not necessarily bad)
Chart 5 showing S&P 500 earnings by sector >
Surprisingly, the biggest contributor of earnings is energy sector (119%) (massive rise in crude oil prices) in 2026, following by Technology and communications services sectors.
Chart 6 showing components of US GDP growth >
Historical averages (2000-2025):
consumption: 67% of nominal GDP
fixed investment: 13%
govt spending: 19%
residential: 4%
net exports: -4%
Chart 7 showing foreign-born share of labour force and labour force participation rate (LFPR) >
Foreign born share of labour force has been growing, but LFPR has been declining over the years.
Main reasons for LFPR decline over the years:
Ageing population (Baby boomers moved out of the labour force)
Declining prime-age male participation
More young adults staying in education and delaying workforce entry
Structural economic shifts: Manufacturing decline, automation and globalisation
Health and social factors
COVID-19 pandemic: Business closures, childcare disruptions, health concerns and early retirements triggered a sharp fall in labour force participation.
From 67% levels in 1997, labour force participation rate has declined to 61.8% in Sep2026.
Chart 8 showing average tariff rates in the US > Trump tariffs >
10.6% Oct2026
15.9% Feb2026
30.0% 08Apr2025 (peak Trump tariffs)
nearly 8% 2024 (prior to Trump tariffs)
Chart 9 showing bond performance when stock returns were negative >
The chart shows only the 25 years between roughly 1930 and 2022 when the S&P 500 had a negative annual return.
Bonds usually rise when stocks fall. In 21 out of those 25 years, bonds delivered positive returns when stocks were negative.
Bonds provide diversification. For example:
1931: Stocks fell 40%, while bonds gained 2%.
2008: Stocks fell 37%, while bonds gained 5%.
1974: Stocks fell 26%, while bonds gained 3%.
But bonds aren't guaranteed protection. In 2022, both stocks and bonds fell significantly:
Stocks: -18%
Bonds: -13%
Stocks drive long-term growth; bonds help reduce portfolio volatility and cushion losses during stock market downturns.
However, the relationship isn't guaranteed. When inflation and interest rates rise sharply, stocks and bonds can fall together.
That's why diversification across asset classes matters.
Chart 10 showing share of global market capitalisation of major countries; and YTD returns of major stock markets globally >
USA 65% of global market cap
EM 11%
Europe ex UK 10%
Japan 5%
YTD returns in USD terms (end-Dec2025 to end-Oct2026) >
11.8% S&P 500
10% EAFE
13.8% EM
17.9% Japan
10.8% UK
-17.9% China
-13.7% India (lack of AI stocks)
56.4% Taiwan (semiconductor / AI boom)
67.4% South Korea (semiconductor / AI boom)
Chart 11 showing cycles of international outperformance and US dollar >
As per this chart: international stocks and US stocks move in long-term cycles of relative outperformance. Those cycles appear to be related to the strength of the US dollar.
It uses rolling 2-year annualized returns.
The purple area shows how much international stocks outperform or underperform US stocks over a rolling two-year period.
Above zero: International stocks outperform U.S. stocks.
Below zero: U.S. stocks outperform international stocks.
For example:
+10% means international stocks outperform by approximately 10 percentage points annually.
-10% means international stocks underperform by approximately 10 percentage points annually.
A simple case for international diversification for US investors away from only US stocks >
2011–22: U.S. stocks enjoyed a prolonged period of dominance.
2023–26: International stocks have begun recovering relative to U.S. stocks.
- - -
-------------------
Related Blogs:
JP Morgan Guide to Markets Sep2026
JP Morgan guide to Markets Jun2026
JP Morgan Guide to Markets Dec2025
JP Morgan Guide to Markets Jun2025
JP Morgan Guide to Markets Mar2025
JP Morgan Guide to Markets Feb2025
JP Morgan Guide to Markets Dec2024
JP Morgan Guide to Markets Oct2024
JP Morgan Guide to Markets Sep2024
JP Morgan Guide to Markets Jul2024
JP Morgan Guide to Markets Jun2024
JP Morgan Guide to Markets Mar2024
JP Morgan Guide to Markets Dec2023
JP Morgan Guide to Markets Sep2023
JP Morgan Guide to Markets Aug2023
JP Morgan Guide to Markets Apr2023
JP Morgan Guide to Markets Mar2023
JP Morgan Guide to Markets Jan2023
JP Morgan Guide to Markets Dec2022
JP Morgan Guide to Markets Oct2022
JP Morgan Guide to Markets Sep2022
JP Morgan Guide to Markets Jul2022
JP Morgan Guide to Markets Apr2022
JP Morgan Guide to Markets Jan2022
