JP Morgan’s Michael Cembalest has just released his 2025 “Eye on the Market Outlook,” titled The Alchemists, which examines the interplay of coming U.S. policies, technology trends, and global economic pressures. Key themes include deregulation, AI-driven innovation, energy challenges, and geopolitical risks, offering a detailed perspective on market opportunities and threats.

Why It Matters

The “Alchemists” is used as a term for the new Trump policy-makers and the tech community backing them. Cembalest used the term to convey the fact that there are many complex policies being proposed and the mix is supposed to deliver something magical.

Cembalest believes the policy mix, including deregulation, tariffs, and cost cutting, could create economic tailwinds but risks inflation and market instability.

Key Points

• U.S. policies aim to increase business confidence and investment through deregulation but face hurdles such as inflationary risks, tight labor markets, and large deficits.
• The 10-year Treasury yield reflects market skepticism about the productivity impact of the current policy mix.
• AI firms like Nvidia and Microsoft are increasing capital spending and are concentrating on long-term ROI.
• Nvidia’s projected 15% share of U.S. capital spending by 2026 underscores AI’s influence but raises concerns about economic concentration and hyperscaler ROI.
• Surveys show 90% of generative AI projects met or exceeded expectations, but sustained profitability remains uncertain.
• Renewable energy faces challenges meeting demand from AI and electrification; skepticism persists about nuclear power’s near-term potential.
• China’s economic slowdown, trade tensions, and geopolitical risks limit prospects for rapprochement or significant recovery.
• China’s liquidity trap and slowing economic momentum mirror Japan’s 1990s stagnation, with global trade implications.
• Deregulation is seen as a positive.
• Cryptocurrencies experience speculative rallies fueled by political donations rather than increased utilization, reflecting a sentiment-driven market.
• U.S. equity markets exhibit high valuations, creating vulnerability to corrections amid reliance on a few tech leaders.

Some Insightful Graphs From the Report

Since China joined the WTO, US consumer spending and US GDP has been continuing on their upward path, but US industrial production has flatlined. Along with this, US manufacturing jobs have been lost, labor share of gross profits has declined, suicide rates are up, non-metro poverty rates are up.

Surveys on the return on investment from Generative AI show great promise.

Surveys also show that across multiple sectors, enterprises believe their AI projects are meeting or exceeding expectations.

So many of us hope for a resurgence of nuclear power. But the reality is no new plants with grid connection dates from 2024 to 2030 are under development in the US.

China’s economic outlook is not doing so well. Many ways to capture this. Here is year over year economic activity:

There are many ways to capture the impact of regulation on Europe. So much of it is summed up in this graphic on the creation of new public companies in the 21st century:

What’s Next

Cembalest believes we should expect a market corrections of 10–15% this year, in part because we are due for one but also because of policy uncertainties and overvalued equities.

He also believes hyperscalers must demonstrate ROI from AI investments within 18 months to sustain market confidence.

Energy strategies should prioritize cost-effective and reliable solutions to support technological and economic growth.

Global tensions, particularly U.S.-China relations, demand close monitoring for shifts in trade and security dynamics.

Recommendations

Business leaders should continue to focus on generating value including by leveraging AI. It would also be a good idea to diversify energy strategies. Investors should focus on undervalued sectors while staying vigilant about government policy impacts. Policymakers need to mitigate risks in deregulation efforts to avoid market disruptions and strengthen economic resilience.