Caixin Leasts (Cailian She) August 25 News (Edited by Liu Rui): On Monday, Eastern Time in the United States, JPMorgan Chase said in a research report that it remains optimistic about the stock market for the rest of this year. However, it believes that any rise will come from sector rotation rather than a fierce broad-based rally.

Bullish on the U.S. stock market’s performance this year

In a report, a strategist at JPMorgan, Fabio Bassi, wrote: “For the stock market, we hold a constructive view of the market through year-end. We expect the market to grind higher steadily, with the main theme being sector rotation rather than a full-scale, across-the-board rally.”

The firm said that the recent rebound in the semiconductor sector signals a tactical repair in market risk appetite. Meanwhile, with the Federal Reserve policy remaining patient and curbing market volatility, the market’s positioning levels and the degree of divergence among sectors will drive the outlook for the next phase of the market.

Overall, JPMorgan is bullish on high-quality growth stocks and mega-cap cloud vendors; after recent valuation repricing, the semiconductor sector is also attractive.

JPMorgan Chase added that, if the U.S. sees inflation credibly cool down in the “Goldilocks” benign economic environment and the Federal Reserve keeps interest rates unchanged, the market rally is likely to spread further.

Recent Treasury market volatility reflects increased capital demand

JPMorgan also discussed recent volatility in the U.S. Treasury market. JPMorgan noted that the bigger backdrop is a heavy selloff in long-dated U.S. Treasuries, with yield curves for advanced economies steepening again.

The underlying drivers are twofold. On one hand, there is a crowding-out effect from the supply side: mega-cap cloud vendors’ capital expenditures are competing for market funding with sovereign bond issuance. On the other hand, rising confidence in the commercialization of AI is lifting the real level of investment returns.

One key point for risk assets is that JPMorgan does not interpret this round of bond-market moves as a signal of policy error. In a research note, it wrote: “Long-end yields rising and the yield curve steepening more reflect increased capital demand and investment opportunities, rather than market concerns that policy is wrong.”

JPMorgan also said that, in its base-case scenario, the term premium would only rise modestly, so this round of changes will not trigger broad-based risk-asset selloffs.

JPMorgan also mentioned that the U.S. Treasury’s expansion of 10-year and 30-year Treasury buyback volumes has released anxiety at the policy level about yields on the long end rising. The firm also expects that this week’s Jackson Hole Global Central Bank conference will do little to clarify the market debate over how the Federal Reserve reacts to policy.