- JP Morgan strategist David Kelly predicts US GDP and inflation below 2% by Q4.
- His call runs counter to some prominent forecasters' predictions of high growth and high inflation.
- Kelly suggests investing in international stocks, municipal bonds, and alternative assets.
Some Wall Street banks are betting the US economy is going to run hot in the months and years ahead, predicting a stretch of high growth and hot inflation.
But David Kelly, the chief global strategist at JP Morgan Asset Management, thinks things will be a little chillier than most are expecting.
In an interview with Business Insider this week, Kelly said that by the fourth quarter of this year, he expects to see both GDP growth and inflation under 2%. Given that the economy grew 4.3% in the third quarter last year and inflation was 2.7% in December, that might sound surprising.
Kelly's reasoning? Immigration numbers are falling, and that will eventually weigh on the labor pool and consumer demand.
"We're getting stimulus right now from income tax refunds, we may get some stimulus from tariff rebate checks, but all that's gonna fade in the fourth quarter of this year, and the economy really can't grow more than about 1.5% per year without some change in immigration numbers," Kelly said. "I think that could allow for some more rate cuts in 2027 in a sort of soggier economy."
He pointed to January Census Bureau data that the agency said showed a "historic decline in net international migration."
Census Bureau
"I think a report that didn't get enough prominence last week was the Census Bureau report, which showed not so much what immigration did over the last year or the year that ended in July of 2025, but what they think is going on right now," Kelly said.
"Right now, they think that annual immigration to the United States is down to 321,000. If that's right, the working age population age 18 to 64, is falling by 20,000 people per month."
Given these numbers, Kelly said he's leaning away from parts of the market that could be sensitive to population declines, such as consumer staples and housing.
"I'd be a little cautious about consumer staples here," he said. "I saw a large consumer staples company blaming some poor results on consumer worries or consumer income. It's not consumer worries or consumer income, it's a lack of consumers."
Where to invest instead
Kelly said investors are best off increasing their exposure to international stocks right now. While ex-US stocks have outperformed in the last year, they still have have cheap valuations relative to US stocks, he said. Plus, US investors are still historically under-indexed on international due to the long-run outperformance of US stocks in recent decades.
"Ask yourself one question: Where is there an embedded prejudice within markets?" Kelly said. "Where is there something where people almost irrationally hate something or irrationally love something?"
"We saw this, after the tech meltdown after the dot com bubble burst. We saw that with financials in 2009," he continued. "Well, today, what do people really hate? People hate international. US investors hate international."
Kelly said that it didn't necessarily matter which regions or countries outside the US to invest in, but to simply add exposure. Examples of funds that offer exposure to international stocks include the Vanguard FTSE All-World ex-US ETF (VEU) and the iShares Core MSCI Total International Stock ETF (IXUS).
Outside of stocks, Kelly said he prefers municipal bonds over corporate credit because of the relative tax savings. In alternative assets, which are historically uncorrelated to stock movements, Kelly prefers the real estate, infrastructure, and global transportation themes.
The post Here's how a top strategist says to invest this year if low inflation and growth buck Wall Street's 'run it hot' thesis appeared first on Business Insider
