JPMorgan Chase Stock Allocation: Maintains Bullish Stance on "Tech + Cyclical" Sectors, Recommends Adding Healthcare Stocks to Mitigate Risks

JPMorgan’s latest report states that it remains bullish on a "tech + cyclical" mix for stock allocations, while recommending adding healthcare as a third investment pillar to reduce the overall portfolio’s correlation with macro factors. The report points out that the tech sector currently offers oversold rebound opportunities. The forward price-to-earnings (P/E) ratio of U.S. "Magnificent Seven" (excluding semiconductor companies) is two standard deviations below its average since 2018, and a return to the historical average could bring around 56% upside potential. JPMorgan believes market concerns over AI investment returns are excessive: order backlogs at large-scale cloud computing firms have grown by roughly 150%, outpacing the ~80% growth in capital expenditures. It favors mean reversion opportunities in AI-related assets, with particular attention to AI targets in Asia-Pacific markets like South Korea. For the cyclical sector, JPMorgan recommends shifting from financials and consumer stocks to industrials, arguing that industrial firms will benefit from global economic improvement, earnings recovery, and valuation re-rating driven by the AI theme. Additionally, the report advises allocating to the healthcare sector as a defensive asset, given its low correlation with the macro cycle, which helps reduce portfolio volatility. On emerging markets, JPMorgan is tactically bullish on Chinese Hong Kong-listed stocks (H-shares), expecting them to benefit from AI infrastructure construction and commercialization trends, though their gains lag behind those of South Korea, Taiwan, and A-shares. It also suggests investors take partial profits from some overextended, crowded AI supply chain targets. The report further recommends monitoring Asian refining companies, as geopolitical uncertainties are pushing Asian refining margins to historic highs.