JPMorgan stays constructive on stocks, expects a grind higher with rotation

Investing.com -- JPMorgan told clients in a note on Monday that it remains positive on equities heading into the year-end, but expects gains to come through rotation rather than a broad melt-up.

"In equities, we stay constructive into year-end, expecting a grind higher with rotation rather than a broad melt-up move," strategist Fabio Bassi wrote. The bank said the rebound in semiconductors signals a tactical healing in risk appetite, and that with Federal Reserve patience suppressing volatility, positioning and dispersion should drive the next leg.

JPMorgan favors Quality Growth and hyperscalers, but also finds semiconductors attractive given the recent repricing. A Fed on hold in a Goldilocks scenario of genuine disinflation could broaden the rally, the bank added.

The backdrop, JPMorgan said, has been a sharp long-end selloff and renewed steepening in developed market curves, driven by supply-related "crowding out" as hyperscaler capital expenditure competes with sovereign issuance, and by higher real returns on investment as confidence in AI monetization improves.

Crucially for risk assets, the bank does not read the move as a policy-error signal. "Higher long-end yields and steeper curves may reflect higher demand for capital and investment opportunities more than policy-error fears," it wrote, adding that in its baseline of only a modest further rise in term premiums, this is not a catalyst for broad risk-off.

JPMorgan also noted the Treasury's larger 10-year and 30-year buybacks signaled discomfort with rising long-term yields, and does not expect Jackson Hole to settle the reaction-function debate.

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