JPMorgan says the AI-driven momentum rally in US stocks ranks among the four largest of the past 40 years and is the second-fastest on record, behind only the 1999 dot-com boom. The bank flags a widening gap between momentum and fundamentals as a warning sign, even as it points to strong second-quarter earnings led by AI and energy spending.
JPMorgan says the current momentum-driven rally ranks among the four largest of the last 40 years by size, and second by speed, trailing only the 1999 internet boom. The comparison highlights how heavily markets now depend on a narrow cluster of AI-linked names to drive broader index gains.
Momentum outpaces fundamentals
The bank's systematic research desk says correlation between momentum and traditional factors like valuation and quality is falling, a gap that suggests investors are increasingly chasing rising prices rather than company fundamentals. JPMorgan also points to sharply increased volatility among popular momentum names, citing recent swings in South Korea's memory chip stocks as further evidence that positioning has grown stretched.
Warning signs extend beyond technology into industrials, and show up geographically in Japan and emerging markets, JPMorgan said. As a result, the bank recommends investors diversify toward value style stocks and broaden geographic exposure, hedging against the rapid losses that have historically followed similar momentum-led rallies once they unwind.
Earnings strong, but concentrated
JPMorgan struck a more constructive tone on earnings. Second-quarter S&P 500 earnings per share are tracking near 38% growth year over year, which would mark a second straight quarter of growth above 20%, powered largely by AI and energy sector spending.
However, the bank cautioned that unrealised gains from hyperscalers' private AI investments are inflating the headline figure, and stripping those out still leaves growth near 19%. JPMorgan estimates semiconductor companies now account for more than half of the index's overall earnings growth, as capital spending shifts away from the hyperscalers themselves and into chipmakers.
JPMorgan's view: earnings remain strong, but a rally concentrated in a narrow set of AI winners looks increasingly vulnerable to a sharp reversal.
Source: Investinglive
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