- JPMorgan (JPM) remains bullish on global equities, arguing higher bond yields largely reflect stronger economic growth rather than worsening inflation.
- The bank expects solid earnings growth and sees limited risk of aggressive central-bank tightening.
- JPMorgan favors cyclical stocks and expects market leadership to broaden beyond AI.
A Constructive Outlook Despite Higher Yields
JPMorgan is pushing back against the notion that rising bond yields spell doom for equities. In a recent note, the bank argues that the recent climb in long-term yields is partly a reflection of the bond market pricing in a stronger future productivity cycle from AI investment, rather than solely higher inflation expectations or fears over public debt. This interpretation, if correct, suggests that equities can continue to advance even as yields rise.
The bank's latest equity strategy is constructive into year-end, but it does not expect a broad "melt-up." Instead, it anticipates a gradual advance marked by sector rotation, valuation dispersion, and wider market participation.
Earnings and Leadership in Focus
The underlying earnings backdrop is powerful but uneven. J.P. Morgan Private Bank reports S&P 500 revenue growth of 16% year over year and earnings growth approaching 52%; adjusted for major one-off investment gains, earnings growth is about 32%. It says 86% of companies beat EPS estimates, and all 11 sectors recorded positive revenue growth.
However, concentration remains a concern. Another J.P. Morgan analysis estimates second-quarter S&P 500 EPS growth at about 38% year over year, but says only 10 companies account for 77% of the expected gain—evidence that headline earnings strength remains concentrated.
This concentration is particularly pronounced in technology. Semiconductor EPS is projected to grow 134% year over year and contribute 61% of index-level earnings growth. Conversely, hyperscalers' adjusted contribution to EPS growth fell to 8%, from 21% in 2025 and 41% in 2024, because their data-center capital spending has weighed on profitability.
This distinction explains JPMorgan's preference for semiconductors over hyperscalers and higher-risk AI plays. Chip firms are currently closer to receiving the cash generated by the AI infrastructure buildout, while hyperscalers bear much of the initial cost of data centers, compute capacity, and financing.
The 'Good Yields' vs. 'Bad Yields' Debate
The key to JPMorgan's optimism is the reason behind the yield rise. Higher yields lower the present value investors assign to distant future profits, which tends to pressure high-valuation "long-duration" growth stocks. That is why a sustained yield jump can hurt technology shares even when earnings are strong.
But JPMorgan's more optimistic interpretation is conditional: yields are manageable for equities if they rise because real growth, capital investment, and expected productivity are improving. They become much more problematic if the rise instead reflects persistent inflation, rising fiscal-risk premia, or a central-bank policy error.
The bank points to the recent semiconductor correction—more than 20% in the cited market view—as an opportunity if revenue forecasts are achieved. It argues that a peak in chip earnings may already be reflected in valuations.
A Rotation Toward Cyclicals
A steeper yield curve can be beneficial for economically sensitive businesses—especially banks—while stronger capital expenditure supports industrials, materials/miners, utilities, logistics, construction, and some consumer cyclicals. JPMorgan has highlighted banks, mining companies, industrials, and consumer cyclicals as potential beneficiaries of a broader phase of the rally.
Energy is another important, but more volatile, support. Higher oil and gas prices linked to the Iran conflict lifted sector earnings: J.P. Morgan estimates energy EPS rose 71% year over year in one measure, while another analysis says energy growth expectations rose sharply as Brent averaged 53% higher year over year during the quarter.
The AI Capital Cycle: A Double-Edged Sword
The core caveat is funding: AI-related debt issuance has exceeded $220 billion so far this year, double the prior-year total, while U.S. corporate bond issuance has reached $1.68 trillion, nearly 27% above the comparable 2025 period. That supply can itself put upward pressure on long-dated yields.
The largest technology firms' capex is expected to surpass $1 trillion in 2027, making the question of debt capacity, data-center utilization, chip demand, power availability, and AI monetization unusually important.
JPMorgan acknowledges the uncertainty: consumer AI use is widespread, but enterprise deployment is slower because it requires data integration, security, workflow redesign, and governance—not merely access to more capable models.
Political and Global Context
Semiconductors sit at the center of U.S.–China technology competition. U.S. export restrictions on advanced AI chips and related computing equipment have been in force since 2022, with 2026 policy actions revising licensing rules and placing tariffs on a narrow category of advanced AI semiconductor imports. The rules affect chip designers, equipment suppliers, cloud providers, and the supply chains of Taiwan and South Korea.
The United States also clarified in May that advanced-chip licensing requirements can apply to overseas subsidiaries of Chinese-headquartered firms, targeting potential routes around existing restrictions.
These policies create two opposing effects for the bullish semiconductor case: they can strengthen investment in non-China supply chains, but they can also constrain addressable markets, increase compliance costs, and amplify geopolitical risk.
Outlook and Watchpoints
JPMorgan's base case is a grind higher in equities rather than a surge. Semiconductors may benefit if earnings meet forecasts and yields stabilize; cyclicals could gain if growth holds up and the yield curve steepens without a major inflation revival.
The most important near-term indicators are:
- Long-end Treasury yields and term premium: a modest rise is consistent with JPMorgan's thesis; a disorderly surge would challenge it.
- Inflation and central-bank communication: a shift toward unexpectedly aggressive tightening would undermine the "good yields" narrative.
- Hyperscaler capex, debt issuance, and free cash flow: these show whether AI infrastructure spending remains sustainable.
- Semiconductor orders, inventories, and guidance: chips remain the most direct revenue recipient of AI capex.
- Oil prices and Middle East developments: sustained high energy costs could revive inflation pressure even as they support energy earnings.
- U.S.–China technology rules: new export restrictions, enforcement actions, or retaliation could reprice semiconductor risk rapidly.
In the longer term, the bullish case is that AI investment produces measurable productivity, corporate revenue, and a broader earnings base; in that outcome, higher real yields and higher equity prices can coexist. The bearish alternative is that capex and debt rise much faster than monetization, leading to pressure on cash flow, credit costs, and valuations.
Overall, the headline is best read as a conditional risk-on view: higher yields are compatible with an equity rally when they reflect productive investment and durable earnings growth, but not if inflation, fiscal stress, geopolitical disruption, or AI monetization failures cause yields to rise for the wrong reasons.