JPMorgan Chase Predicts S&P 500 to Hit 6144 Points This Quarter

In the midst of a notable rebound in the U.S. stock market, investors are questioning whether this rally has reached its peak. Andrew Tyler, the head of the market department at JPMorgan Chase, has a clear response: not yet. In a recent report, Tyler emphasized that the core elements driving the current bull market remain intact. These elements include resilient macroeconomic data, improving earnings, and easing trade tensions. Despite the rapid pace of recovery, which has made this rally one of the least popular among investors, the primary buying force has come from retail investors and corporations.

Tyler also noted that while the risk of a pullback is increasing, the likelihood of a significant correction is low. He pointed out that concentration risk could exacerbate concerns about a pullback, as the market's focus on large-cap technology stocks mirrors the situation from the first half of last year. Tyler predicts that the S&P 500 index will reach a new historical high of 6144 points this quarter.

The rise in 10-year U.S. Treasury yields above 4.5% has been analyzed by JPMorgan Chase. Tyler believes this is not entirely negative. His colleague, John Schlegel, observed that in the post-pandemic era, when the 10-year Treasury yield reaches a new high, the stock market takes 1-2 months to digest and adjust. With the cycle peak at 5%, there is still room for further gains. JPMorgan Chase further noted that rising yields should drive investors towards high-quality stocks, particularly large-cap technology stocks, while putting pressure on essential consumer goods and utility sectors.

The bank's interest rate strategists have also raised their forecast for the 10-year Treasury yield by the end of 2025 from 4% to 4.35%, and for the 2-year Treasury yield from 3.1% to 3.5%. This increase in yield forecasts is due to higher real GDP growth expectations and lower inflation expectations, which delay and reduce the scope of the rate-cutting cycle.

Despite the significant market rebound, institutional holdings paint a different picture. Hedge funds continue to net sell, and leverage remains near historical lows, indicating a subdued market sentiment. JPMorgan Chase believes that due to the prevailing skepticism in the market, if this rebound continues, it could lead to unexpected outcomes.

Market sentiment remains optimistic, with the "Mag 7" stocks returning to their traditional patterns. Brian Heavey from the TMT department noted that active bullish investors seem underallocated, underperforming the S&P 500's rise. However, there has been no significant "chasing" of gains, with the bank actually net selling technology stocks the previous day. As broader indices recover key support levels, CTA strategies become better buyers, and stock buybacks increase, any short-term declines may be shallow as active funds are forced to re-enter higher-risk, higher-beta stocks.

Paige Hanson from the industrial sector observed that the market rebound on Tuesday showed resilience in the industrial sector, which had underperformed on Monday due to short covering in industrial and cyclical stocks. However, on Tuesday, these favored cyclical stocks saw a rebound, outperforming the broader market and indicating a healthier recovery driven by active buying rather than passive short covering.

According to feedback from JPMorgan Chase's recent technology conference, despite volatility in sectors like chemicals, transportation, and housing, there has been no significant change in market sentiment. Both companies and investors maintain a positive outlook on the macroeconomic and market conditions.

Briggs Barton from the consumer sector reported that the latest data shows positive consumer spending trends. Marissa Gitler from the futures and options department noted that the "Mag 7" stocks are reverting to their traditional patterns, where investors buy "safe" large-cap technology stocks during times of macroeconomic uncertainty. Early this year, funds flowed out of U.S. risk assets, primarily into the "Mag 7." Now, funds are flowing back into U.S. risk assets, reversing this trend and narrowing the gap.