Key takeawayJPMorgan expects the range of stock market leaders to continue broadening, but that view depends on the economy and earnings remaining resilient and whether the impact of geopolitical conflict on oil prices and inflation proves short-lived.
Why might a peak in yields support stocks?
- JPMorgan maintains the view it formed in early October that bond yields have peaked. The bank believes that if economic activity and corporate earnings do not step down markedly, a peak in yields will help sustain the rally rather than signal an imminent economic weakening.
- The bank noted that earnings per share growth remains strong, driving a significant decline in equity valuation multiples. After yields peaked in early October, value stocks and the S&P 500 Equal Weight Index rebounded.
Market rotation is broadening. Where do technology stocks stand?
- JPMorgan maintains its view that market leadership will broaden in the second half of the year: the AI ecosystem is struggling, with its relative performance back at the lows seen from June to July, while value stocks have rebounded.
- However, the bank does not believe investors should sell technology stocks across the board; valuation multiples for large cloud service providers have fallen significantly and are at their lowest levels since 2012.
- Indices near their highs mask defensive positioning beneath the surface: the S&P 500 and STOXX Europe 600 indices are just 3% and 2% below their respective record highs, but money shifted sharply into defensive sectors last month, erasing all of the gains high-beta sectors had made over the previous three months.
What conditions could change this view?
- JPMorgan believes geopolitical conflict could escalate again after the midterm elections, triggering equity market weakness and a fresh rise in oil prices; the bank expects any renewed conflict to be short-lived.
- Whether high-beta sectors can stabilize again depends on inflation concerns no longer intensifying, the impact of a new round of geopolitical conflict being short-lived, and economic activity remaining resilient. The bank also noted that the latest German IFO indicator rose to a four-year high.
- In sector selection, JPMorgan had been cautious on defense since the summer of 2025, but became more positive two months ago after the sector weakened, favoring investments linked to military modernization.
