JPMorgan remains bullish on equities for the second half of the year, despite ongoing concerns about geopolitics, inflation, market concentration, the economic cycle and weakness in bond markets.
The bank’s strategists expect major equity indices to reach fresh record highs and see further upside ahead.
JPMorgan Expects New Stock Market Highs
JPMorgan believes the broader equity market can continue advancing during the second half of the year.
The bank has also been looking for a broader market rotation, with gains extending beyond the largest technology companies.
Strategists have recently highlighted improving momentum in semiconductors and other cyclical areas.
However, JPMorgan does not expect technology stocks to dominate the market in the same way they did during the previous summer.
Market Participation Could Broaden Further
Over the past two months, JPMorgan has argued that market leadership should become more balanced.
That view remains unchanged.
The bank expects more sectors and industries to participate in the rally, reducing some of the concentration risk that has worried investors.
A broader advance could help support equity indices even if the largest technology stocks lose some momentum.
Volatility Could Remain Elevated
JPMorgan also expects market volatility to stay relatively high.
Concerns about profitability and economic growth could return periodically, creating temporary pullbacks.
However, the strategists do not expect those risks to derail the broader bullish trend.
Unlike in 2022, JPMorgan does not expect inflationary pressures to rise sharply enough to force central banks into significantly tighter monetary policy.
Weaker Labor Data Could Support Stocks
The U.S. labor market remains a key factor in JPMorgan’s outlook.
Strategists described the employment backdrop as mixed, with some indicators pointing to weaker confidence around jobs.
That could create a “bad news is good news” environment for equities.
Softer labor market data may reduce concerns that the Federal Reserve needs to tighten policy further to prevent the economy from overheating.
A weaker U.S. dollar could also provide support, particularly for international equities.
Strong Earnings Support the Bullish Case
Corporate earnings have provided another reason for JPMorgan’s optimism.
The bank expected the second-quarter earnings season to reassure investors, and that view has largely been confirmed.
Both U.S. and European companies have delivered year-on-year earnings-per-share growth above 20%.
Strong earnings growth could help justify higher equity valuations and provide additional support for stock markets in the coming months.
Defensive Rotation May Be Temporary
JPMorgan previously expected a short-term shift toward lower-volatility and defensive stocks.
That move included gains in sectors such as healthcare and consumer staples.
However, the bank continues to view that rotation as tactical rather than long term.
Strategists now expect higher-beta stocks to regain momentum as defensive groups lose strength.
Cyclical Stocks Could Lead the Next Move
A steepening yield curve could provide another tailwind for cyclical sectors.
JPMorgan highlighted banks, mining companies, industrials and consumer cyclicals as areas with attractive potential.
The bank also expects semiconductor stocks to stabilize after recent volatility.
If the economic outlook develops as JPMorgan expects, cyclical and higher-beta stocks could outperform during the second half of the year.
JPMorgan Sees More Equity Upside Ahead
Overall, JPMorgan remains constructive on the stock market.
Strong earnings, broader market participation, a potentially weaker dollar and supportive economic conditions all contribute to the bank’s positive outlook.
While volatility and geopolitical risks remain, JPMorgan believes the macroeconomic environment could support further equity gains and stronger performance from higher-beta sectors during the second half of the year.
