A trader at JPMorgan said the market would rebound from the "overreaction" sell-off.

After the tech sector suffered its biggest decline since the end of 2022, wiping out the recovery, J.P. Morgan’s trading desk expects the decline to be temporary.

Shares of chipmakers weighed on the Nasdaq 100 index, which fell 2.9% on Wednesday, its worst single-day drop in 19 months, as the bank’s market intelligence chief, Andrew Tyler, said it was an “overreaction” to geopolitical concerns.

This led to a market sell-off, but we think it will rebound in the next 1-2 weeks,” he said in a Thursday morning response to a client report asking whether the rally was over and whether the correction had begun.

In the backdrop of growing risks of stricter trade restrictions for chip companies and a sustained rotation in equities, the Philadelphia Semiconductor index fell for its biggest single-day decline since October 2022, extending losses for chipmakers.

His bullish outlook on the market is consistent with the backdrop, he said, with one reason for the market’s quick recovery being that “macro data remains optimistic,” and he saw the latest retail sales and industrial production reports as a “turnaround inflection.” Positive earnings catalysts, as well as expectations for a so-called monster quarter for the seven stocks, will also support the market, as will Fed officials still expected to cut rates.

Meanwhile, the recent rotation to small caps is supported, with energy and financial stocks closing lower on Wednesday’s sell-off, while the Russell 2000 index outperformed the S&P 500 index in a market sell-off. Small caps have surged recently at a pace unseen since the pandemic, as traders bet on a loosening of policy.

H outlook is at risk of seasonal weakness. The S&P 500 has averaged 1.5% returns in July since 2000. Even after Wednesday’s sell-off, the benchmark index is up more than 2% so far this month, meaning it could hit an all-time high in August. A buildup in tech positions and a slowdown in summer retail traffic are also potential negatives, as are election uncertainties, particularly on taxes.

He said that underperformance by large tech stocks could be a catalyst for AI trading, as all members of the group have consistently beaten analyst expectations over the past few quarters.

Mr. Tyler and his team said that so far, “earnings season continues to show consumer performance better than the market expects,” and that this strength could support the economy and, in turn, earnings and the market.