JPMorgan says it remains constructive on equities into year-end but expects further gains to come from rotation between market segments rather than a broad rally. The bank continues to favor Quality Growth stocks and hyperscalers, and it does not read the recent rise in long-term bond yields as a warning sign for markets.
JPMorgan strategist Fabio Bassi told clients the bank expects a grind higher with rotation rather than a broad-based melt-up in equities through the end of the year. According to InvestorsHub: "we stay constructive into year-end, expecting a grind higher with rotation".
The bank pointed to the recovery in semiconductor stocks as a sign of improving risk appetite. With the Federal Reserve's patience keeping volatility contained, JPMorgan expects investor positioning and performance gaps between market segments to drive the next stage of the rally.
Quality Growth and hyperscalers stay favored
JPMorgan continues to favor Quality Growth stocks and hyperscalers, while also seeing opportunities in semiconductors following their recent repricing. The bank said a Goldilocks scenario, in which genuine disinflation lets the Fed stay on hold, could let equity gains broaden beyond the current market leaders.
At the same time, developed-market bond curves have steepened after a selloff at the long end. JPMorgan attributed the move partly to supply-related "crowding out," as heavy capital spending by hyperscalers competes for capital alongside sovereign debt issuance. Improving confidence in the ability of artificial intelligence investments to generate returns has also contributed to higher real expected returns, the bank said.
Higher yields not read as a risk-off signal
Despite the rise in long-term borrowing costs, JPMorgan does not see the recent bond-market moves as evidence that investors are worried about a policy mistake. The bank wrote that higher long-end yields and steeper curves may instead reflect stronger demand for capital and investment opportunities. Under its base case, which assumes only a modest further increase in term premiums, JPMorgan does not expect the rise in longer-dated yields to trigger a broad risk-off move across markets.
Treasury buybacks signal focus on long yields
JPMorgan also highlighted the US Treasury's increased buybacks of 10-year and 30-year securities, saying the move shows discomfort with the rise in longer-term yields. The bank does not expect the Jackson Hole symposium to give a definitive answer on the Federal Reserve's reaction function. Instead, JPMorgan expects market leadership to keep shifting as investors weigh valuations, interest rates and evolving expectations around AI-related investment.
Source: InvestorsHub
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