J.P. Morgan's research team still expects global stock markets to rise by double digits in 2026, covering both developed and emerging markets. That forecast comes after a sharp mid-year sell-off in technology and semiconductor (computer chip) stocks revealed how much borrowed money some hedge funds had poured into the AI boom.

Here's what happened. J.P. Morgan Asset Management published a "Review of Markets over July 2026" on August 3. It found that some hedge funds had to sell off investments quickly to pay down their borrowed money, which made the market decline worse. An index tracking semiconductor companies worldwide fell 13.2% during that period.

Reuters, citing a separate J.P. Morgan note, reported on August 4 that global hedge funds lost almost 3% of their gains in July because they had to unwind technology-related trades. Even so, hedge funds were still up about 8% for the year so far.

This was not the first shake-up. J.P. Morgan Asset Management had already looked at a sudden sell-off in software stocks in early 2026, publishing its analysis on February 18 about AI disruption and what it meant for private markets (investments not traded on public stock exchanges). By late February, a JPMorgan note reported by Reuters on February 24 said hedge funds were buying back the biggest technology stocks along with stocks considered vulnerable to AI advances, after weeks of selling. The back-and-forth pattern was already in place before July's more severe drop.

J.P. Morgan's "Mid-Year Outlook 2026: Promise and Pressure" noted that major stock markets fell by roughly 10% during this period and explicitly flagged risks tied to hedge funds using leverage (borrowed money) and speculative practices.

The pattern tells a story. From the February software sell-off through the July semiconductor plunge, the arc is clear: too many investors piled into the same AI-related trades using borrowed money. When some had to sell, it forced others to sell too, creating a feedback loop that turned normal risk reduction into something far more violent.

J.P. Morgan's more optimistic views are worth separating from the volatility. The firm's Private Bank published its Q2 2026 investment review on July 8, arguing that strong earnings (company profits) led by tech and AI-driven growth continued to support stock prices. It also said non-tech sectors could benefit from improving U.S.-Iran relations. A week later, J.P. Morgan published a report titled "Is It All One Big AI Trade?" on July 24, arguing that AI's benefits extend beyond the technology sector, with diverse industries showing strength.

The broader context here matters. That report reframes AI from a single-sector risk into a broad productivity story. If AI genuinely boosts many different industries, that would spread out the concentration that made July's sell-off so damaging. Think of it like this: if everyone owns the same stock and something goes wrong, everyone falls together. But if people own different stocks, a problem in one area does not take down the whole market.

The tension between these views is the central question for the rest of 2026. J.P. Morgan's forecast of double-digit gains assumes company profits keep growing and that AI's benefits spread across the economy rather than staying locked in tech. But the July episode showed how much depends on where borrowed money sits in the system. When hedge funds crowd into the same trades and all have to sell at once, the damage (the 13.2% semiconductor drop) comes from concentrated positions and forced selling, not because the underlying companies suddenly became less valuable.

The roughly 8% year-to-date hedge fund return, even after July's 3% loss, suggests the AI trade has paid off well for those who got it right. But the round-trip (selling tech in February, buying it back, selling again in July) shows the cost of being in a crowded trade. Each reversal cost money through slippage, the gap between the price you expect and the price you actually get. For funds using borrowed money, it may have also forced them to sell at the worst possible prices.

For large institutional investors, the February software sell-off and the July semiconductor plunge raise parallel questions about private market investments. J.P. Morgan Asset Management's decision to examine what the software sell-off means for private markets signals that price swings in public stocks can eventually affect the stated value of private investments. This is especially relevant for late-stage venture capital and growth equity portfolios connected to AI.

The concern is that if public market prices for AI-related companies stay volatile, private market values may eventually be written down. The thing that protects private investments in the short term (they are hard to sell quickly, so no one is forced to dump them) can become a problem later, because their values may not be updated until long after public markets have already moved.

The U.S.-Iran peace angle mentioned in the Private Bank's Q2 review adds another factor. If tensions between those countries continue to ease, the shift from tech into other sectors that J.P. Morgan expects would reduce some of the concentration risk that made July so painful. If companies across many sectors are growing profits, that would support the double-digit forecast without needing the AI trade to carry the entire market alone.

What remains unresolved is whether July's forced selling was a one-time event or the first of several. J.P. Morgan's mid-year warning about hedge fund leverage and speculative practices suggests the firm sees the risk as ongoing. The roughly 10% market corrections and 13.2% semiconductor index decline were not, in this view, the result of being wrong about AI as a technology. They were the result of too much borrowed money chasing the same idea, which is a different problem, and one that does not go away just because the underlying idea turns out to be right.