JPMorgan warns AI-driven stock momentum echoes dot-com era extremes
JPMorgan's note points to a market increasingly vulnerable to a sharp reversal, given how concentrated gains have become in a small cluster of AI-linked names. A decoupling between momentum and traditional fundamentals such as valuation and quality suggests investors are chasing price action rather than underlying strength, a pattern that has historically preceded steep drawdowns once momentum trades unwind. Rising volatility in momentum-heavy markets, highlighted by recent swings in Korean memory stocks, adds to the case that positioning has become stretched. The bank's suggestion to rotate toward value and diversify geographically signals growing institutional caution even as headline earnings numbers remain strong, and could foreshadow increased rotation flows out of crowded AI trades in the coming months.
--- JPMorgan says today's AI-fuelled momentum rally is one of the fastest on record, and is starting to show the same warning signs that preceded past busts.
Summary:
- JPMorgan says the current momentum-driven rally ranks among the four largest of the last 40 years by size, and second by speed, behind only the 1999 internet boom
- The bank's systematic research team says correlation between momentum and other factors like valuation and quality is falling, suggesting investors are increasingly just chasing rising prices
- Rising volatility among popular momentum stocks, including recent swings in Korea's memory chip names, is flagged as another warning sign
- Warning signs are visible across technology and industrials, and in Japan and emerging market equities
- JPMorgan recommends investors diversify by style toward value and by geography to guard against losses typically seen once momentum rallies end
- Separately, the bank says second-quarter S&P 500 earnings growth is tracking near 38% year-on-year, which would mark a second straight quarter of 20%-plus growth, though paper gains from hyperscalers' private AI investments are skewing the figure; stripping those out still leaves growth around 19%, driven largely by capital spending flowing into the semiconductor sector
JPMorgan has warned that the AI-driven rally powering US equity markets is showing early signs of strain, even as the underlying earnings picture for corporate America remains robust.
In a note reviewing market positioning, the bank's strategists said the current bout of momentum-driven investing ranks among the four largest in scale seen over the past 40 years, and is the second fastest on record, trailing only the dot-com era boom of 1999. The comparison underscores how heavily markets have come to rely on a narrow set of AI-linked winners to drive broader index gains.
JPMorgan's systematic research desk flagged a growing disconnect between momentum and other traditional investment factors such as valuation and quality. According to the bank, that gap suggests investors are increasingly buying into rising share prices themselves rather than underlying company fundamentals, a dynamic strategists view as an early warning sign. The bank also pointed to sharply increased volatility among the market's most popular names as further evidence that risk is building, citing recent turbulence in South Korea's memory chip-focused equity market as a case in point.
The bank said these warning signs extend beyond the technology sector into industrials, and are visible geographically in both Japan and emerging markets. Given the tendency for momentum-led rallies to unwind quickly once they turn, JPMorgan is advising investors to diversify their portfolios, both by shifting some exposure toward value style stocks and by broadening geographic allocation, as a hedge against the kind of rapid capital losses that have historically followed similar booms.
On the earnings side, JPMorgan struck a more constructive tone. The bank noted that the second quarter earnings season has been strong, powered primarily by spending tied to artificial intelligence and the energy sector. Consensus estimates point to S&P 500 earnings per share growing by roughly 38% year over year, which would mark a second consecutive quarter of growth above 20%, a rare run by historical standards.
However, JPMorgan cautioned that the headline growth figure is partly inflated by large unrealised gains booked by major hyperscale technology companies on their investments in private AI firms. Stripping out those paper gains, the bank said, underlying earnings growth would still be strong at around 19%. The bank noted that growth remains heavily concentrated, tracking the flow of capital expenditure away from the hyperscalers themselves and into semiconductor companies, which JPMorgan estimates are now responsible for more than half of the index's overall earnings growth.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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