Enough of the Tech and AI Stock Frenzy... JPMorgan: "Cyclical Stocks and Overseas Markets to Rise in Second Half"

▲ US Tech Stocks, Big Tech, Cyclical Stocks, Overseas Markets / AI-generated image

JPMorgan projected that the dominance of tech stocks and AI-related stocks will wane for the remainder of 2026, and cyclical stocks and overseas markets are likely to take market leadership.

According to MarketWatch on August 3 (local time), an analysis team led by JPMorgan Global Equity Strategist Mislav Matejka stated that tech stocks and AI-related stocks are unlikely to dominate the market as they did in the second half of 2025. The analysis suggests that investor caution towards Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) may persist, given the uncertainty of whether large-scale capital expenditures will translate into sufficient profits.

The software, enterprise services, and media sectors are also unlikely to escape concerns that AI could erode existing businesses. The analysis team explained, "While businesses may show resilience amid the AI threat, long-term sluggishness will continue," adding that a short-term rebound is possible given the already significant decline. The iShares Expanded Tech-Software Sector ETF (IGM) has fallen by about 11% year-to-date, and the Roundhill Magnificent Seven ETF (MAGS) has remained flat over the same period.

JPMorgan preferred semiconductor stocks over companies whose businesses could be encroached upon by large cloud providers and AI. This is based on the judgment that AI investments are likely to continue increasing. However, for the overall market in the second half, they expect cyclical stocks to lead the gains and consumer discretionary performance to improve. The outlook is that the upward trend, which has been concentrated in a few large tech stocks, will spread to more stocks and sectors.

The possibility that the Federal Reserve (Fed) could return to an accommodative stance if the US economy withstands the Iran war and inflation clearly decelerates was also presented as a basis for the spread of leading stocks. Q2 corporate earnings are also a positive factor for the stock market. In contrast, the average price-to-earnings ratio for US stocks was 20.2x, 21% higher than the 20-year median. The burden relative to the long-term average in the UK market was 5%, and in Japan, it was 18%, both lower than the US. JPMorgan analyzed that non-US stock markets could outperform US markets for a second consecutive year if the debate over AI investment profitability does not subside and the Iran conflict does not significantly re-escalate.

While KOSPI fell by about 40% and the Philadelphia Semiconductor Index by 30% over the past 4 to 6 weeks, major global stock indices remained within 1% of their all-time highs. JPMorgan assessed that the excessive positions concentrated in popular semiconductor stocks have largely been cleared, which could help stabilize related stocks. Amid the shifting market structure centered on tech stocks, a key change for the second half's stock market is the broadening of the ascent drivers across various sectors and regions.

[Article Key Summary]

-JPMorgan projected that tech stocks and AI-related stocks will find it difficult to monopolize the market for the remainder of 2026.

-They relatively preferred semiconductor stocks, cyclical stocks, and consumer discretionary over software and large tech companies.

-Based on the high valuation burden of US stocks and the expansion of market participation, they suggested the possibility that overseas markets could outperform the US for a second consecutive year.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*