JPMorgan: Big Investors Underweight Mega Tech as Market Leadership Narrows Again
Despite a dramatic public spat between two of the world’s most influential figures — the U.S. President and the planet’s richest man — investors largely shrugged it off, opting for popcorn over panic. While Tesla saw nearly $200 billion in market cap erased, the S&P 500 fell just 0.5% and remains a modest 3.3% below its all-time high from February. The index has surged 19.2% since its April low, fueled by diminishing concerns over the Trump administration’s trade policies.
Investors are continuing to buy the dip, brushing aside tariff threats and political noise. According to JPMorgan strategists led by Dubravko Lakos-Bujas, the market’s momentum suggests the “path of least resistance is to new highs.”
In a Thursday note, the team attributed the S&P 500’s climb toward the 6,000 level to a surprisingly strong first-quarter earnings season. U.S. companies not only posted robust 12% earnings growth prior to “Liberation Day,” but also issued more optimistic guidance — even with an implied average tariff burden of around 20%.
Investor enthusiasm has also been reignited by the AI boom, with capital expenditures in big tech showing no signs of slowing. However, JPMorgan warns that this bullish backdrop could be threatened by a significant economic slowdown in the second half of 2025.
The team points to risks such as tariff-related front-loading, delayed impacts from new policies (including immigration and regulatory uncertainties), and a widening gap between soft and hard economic data. Notably, their business cycle indicator — which tends to lead earnings growth by 2–3 quarters — has been signaling slowdown risks for the past three months.
A downturn could be particularly painful given the market’s elevated valuations. Still, JPMorgan sees a potential silver lining: if growth slows enough, the Fed may pivot to easier policy sooner than expected. That could trigger a “Goldilocks” scenario where cyclical and small-cap stocks stage a temporary rebound.
In the near term, the bank sees what it calls a “dual equity pain trade” driving further gains:
- Positioning Pain: Institutional investors who sold during the April panic are now chasing the rally, helping propel stocks higher.
- Leadership Surprise: Most investors are underexposed to mega-cap tech, expecting broader market leadership from non-U.S. equities. As a result, they may be caught off guard if leadership narrows again in favor of U.S. tech giants.
“Given the global scarcity of high-quality assets — particularly the largest 20 U.S. companies and U.S. credit — we question how much valuation and concentrated ownership will matter once U.S. policy and macro volatility ease,” wrote the JPMorgan team.
In short, while risks remain, a combination of under-positioned investors and renewed interest in U.S. mega caps may continue to drive the market higher — even as the leadership narrows once again.
