«A new wave of all-time highs»: why JPMorgan expects the S&P 500 rally to continue

JPMorgan predicts that the growth of the U.S. stock market after the record on June 27 will continue with a new wave of historical highs. According to analysts of the bank, investors will be inspired by the clarification of the situation with the budget and tax bill, as well as the softening of Donald Trump's trade policy - on the eve of the corporate reporting season. Morgan Stanley agrees with JPMorgan, but Bank of America and UBS warned that risks remain.

JPMorgan's trading team, which previously accurately predicted the stock market would rise to record levels, now expects the rally to continue, CNBC reports. Back on June 24, JPMorgan wrote, «It's time to bet on [stock market] growth again,» and the prediction has come true. On Friday, June 27, the S&P 500 Index closed at an all-time high, closing at 6,173 points - above the previous record of 6,144 points set in February. The rally came amid easing Wall Street concerns about global trade risks and the conflict between Iran and Israel, CNBC noted.

«We believe markets have entered a bullish phase and are expecting a wave of new all-time highs - especially as the budget, tax and trade agreements become clearer ahead of the start of the corporate reporting season, where expectations are still clearly subdued,» the JPMorgan team said in a note Monday cited by CNBC.

According to investment bank analysts, macroeconomic statistics are inspiring enough optimism for the S&P 500 index to continue updating records. «The financial and technology sectors could pull the market higher throughout the reporting season. And the release of Nvidia's results before Labor Day on Sept. 1 should further encourage investors for the fourth quarter,» JPMorgan suggests.

Morgan Stanley's lead equity analyst Mike Wilson alsobelieves that U.S. stock market growth will continue on a 6-12 month horizon. His target for the S&P 500 is 6,500 points, suggesting another 5% rise over the next year. Wilson notes that earnings forecasts for the S&P 500 have improved markedly in recent weeks as worries about Trump's trade war and its negative impact on corporate earnings have abated. For example, the ERB (earnings revision breadth) indicator has improved from -25% in mid-April to the current -5%. Usually such sharp ERB rebounds precede strong market gains, starting with the securities of large and «quality» companies, the analyst wrote. He added that earnings growth could outpace economic growth - unlike the period from 2022 to 2024 - thanks to a weaker dollar and tax incentives from Trump's «big and wonderful» legislative package.

Secondly, the analyst noted a change in market expectations about the Fed's policy. According to Morgan Stanley's forecast, already in 2026 the Fed may go for seven rate cuts - unemployment growth, not inflation, will come to the forefront. «The market will not wait for an official signal from the Fed - growth will begin in advance,» - says Wilson. In his opinion, this process has already started. The main risk - if in the coming months sharply deteriorate employment data, but this scenario is not the basic in the forecasts of Morgan Stanley.

Wilson cites a third argument: the stock market is usually able to cope with external shocks. «It seems that the market is following a familiar scenario: short-term volatility against the background of geopolitical risks is replaced by stability», - said the analyst. This is supported by the decline in oil prices after a recent surge amid a cooling of the conflict between Israel and Iran, which reduces fears of rising energy costs and pressure on the business cycle.

But UBS strategists believe that risks for the rally remain. According to them, investors have not yet come out of the turbulence zone. UBS expects volatility to spike in the second half of the year, as many trade deals have yet to be finalized and the conflict in the Middle East is being held back only by a fragile truce. Bank of America's Michael Hartnett alsowarned that there is a growing risk of a bubble in the stock market amid a massive influx of funds into equities.

This article was AI-translated and verified by a human editor