JPMorgan: Big Investors Underexposed to Mega Tech as Market Leadership Narrows Again

Market leadership is tightening once more, and according to JPMorgan strategists, many large investors are underweight the very sector driving recent gains: mega-cap tech.

Despite a high-profile clash between the U.S. President and the world’s wealthiest individual, markets barely flinched. Tesla may have lost nearly $200 billion in market value, but the S&P 500 dipped just 0.5% and remains only 3.3% below its February peak. Since hitting a low in April, the index has rebounded nearly 20%, as trade war concerns have faded and investor sentiment has strengthened.

In a note published Thursday, JPMorgan’s team led by Dubravko Lakos-Bujas said the “path of least resistance is to new highs.” The rally, they argue, has been driven in part by a stronger-than-expected Q1 earnings season. U.S. companies not only posted solid 12% earnings growth before “Liberation Day,” but also delivered upbeat guidance, even as tariff pressure hovered around 20%.

Investor enthusiasm has also been fueled by the ongoing AI boom, with no slowdown in capital investment from major tech players. But JPMorgan warns that the biggest threat to this bullish setup is a potential economic slowdown later this year.

The bank highlights several risks: companies front-loading activity ahead of tariffs, delayed effects of recent policy changes (such as on immigration and regulation), and a disconnect between soft and hard economic data. JPMorgan’s business cycle indicator — which tends to lead corporate earnings by 2–3 quarters — has been flashing caution for the past three months.

A slowdown could prove problematic given how richly valued equities have become in recent weeks. Still, a weaker economy might prompt the Federal Reserve to cut rates sooner, potentially allowing markets to look past the softness. This could create a “Goldilocks” scenario where lagging areas like small caps and cyclicals bounce back, at least temporarily.

In the near term, JPMorgan sees a “dual pain trade” helping to fuel the current rally:

1. Chasing the Rally: Many institutional investors sold into April’s panic and are now rushing to buy back in as markets rise.
2. Wrong-Side of Leadership: A broad investor shift away from U.S. mega-cap tech — in favor of Europe, emerging markets, and other underperformers — may backfire as leadership once again concentrates in top U.S. names.

With global markets still lacking an abundance of high-quality assets, JPMorgan questions whether stretched valuations and concentrated positioning in U.S. giants will matter much once macro uncertainty subsides.

Bottom line: many investors may find themselves poorly positioned as U.S. mega-cap tech reasserts its dominance — and that could keep pushing stocks higher.