Fearless of inflation shocks, with AI and the economy supporting it? JP Morgan: The S&P 500 will reach 8,200 points by mid-next year!

A top strategist at JPMorgan has stated that although the U.S. is experiencing an "inflation rollercoaster," this will not stop the stock market from soaring to record highs the S&P 500 index is expected to rise about 10% in the next 12 months. Kriti Gupta, Executive Director and Global Investment Strategist at JPMorgan Private Bank, anticipates that the benchmark index will reach around 8,200 points by mid-next year. Inflation Risks Gupta noted that inflation in the U.S. has begun to come in waves. The bank believes the U.S. will face a series of inflation shocks a sharp rise in price pressures that could resemble the inflation crisis of the 1970s, when consumer prices fluctuated dramatically from the mid-70s to the early 80s. Nowadays, Gupta remarked that inflation seems to develop in waves the first major wave of inflation occurred post-pandemic when prices surged sharply; this was followed by energy shocks from the war in Iran earlier this year. Strong Support for U.S. Stocks JPMorgan believes that inflation alone is not sufficient to end the long-term bullish trend in the stock market. Gupta stated that the main foundation supporting the bull market remains strong; one important reason is robust economic growth. The U.S. economy continues to expand, providing confidence for businesses and investors, even as inflation remains a concern; another major factor is the tremendous demand for artificial intelligence. Gupta expects the U.S. stock market to maintain double-digit returns this year. "We expect returns to reach double digits again this year. Moreover, there is still significant room for growth," Gupta added, "We are in the largest wealth creation period in American history." At a time when investors are increasingly concerned about rising risks to the bull market, her viewpoint offers a rare optimistic message. Currently, the main worry among investors is that rising oil prices could exacerbate inflation, forcing the Federal Reserve to raise interest rates. Meanwhile, the stock market has pulled back from historical highs due to significant volatility in the tech sector, raising doubts about the sustainability of AI trading. The Nasdaq 100 index has fallen by 11% from its recent peak and is still close to correction territory. According to the CME FedWatch Tool, the Federal Reserve is very likely to raise interest rates this year, with the market expecting an 86% probability of at least one rate hike by the end of 2026. However, Gupta stated that rising interest rates are unlikely to hinder the long-term upward trend of the stock market, as the economy has shown signs of being able to bear higher borrowing costs particularly when the rate hikes are aimed at addressing structural inflation issues. She explained that economic growth remains stable. The Atlanta Federal Reserve forecasts a real GDP growth of 2.1% in the first quarter, above expectations, but the growth rate in the second quarter is expected to slow to an annualized 1.5%. Despite some cracks appearing in the job market, it remains stable overall, with the unemployment rate in June at 4.2%, close to historical lows. On the other hand, investors in the field of artificial intelligence have also received many positive messages. Gupta stated that although there have been sell-offs in the memory and chip markets recently, the demand for artificial intelligence remains "huge," and U.S. corporations have achieved unprecedented growth in profit margins. According to FactSet data, based on companies that have already reported their second-quarter earnings, the S&P 500 index is expected to achieve its highest net profit margin since the global financial crisis. Gupta also added that both retail and institutional investors' demand for the S&P 500 index remains "far above expectations." "As of now, we have not seen the economy experience shocks sufficient to lead to a significant stock market pullback," she said. Investment Advice Gupta indicated that given the resilience of the U.S. economy and unprecedented growth in corporate profits, the banks core investment portfolio consists primarily of U.S. stocks, with all funds allocated to the U.S. market. "We genuinely believe that the most sustainable growth is happening there," she said. Gupta also highly recommends financial stocks. She pointed out that the financial sector reflects overall economic growth and may benefit from the broader productivity improvements brought about by artificial intelligence technology, making investment in financial and banking stocks a way to capture the expansion trend of AI trading. "In addition to banks actually using AI to improve their efficiency, we strongly feel the chain reaction AI has on the economy," she added. According to State Street Global Advisors, the financial sector has been one of the best-performing sectors in the S&P 500 over the past three months, rising by 5%. Additionally, emerging markets present another avenue for diversified investment. Gupta specifically mentioned Latin America, which is experiencing rapid economic growth as its middle class expands. The MSCI Emerging Markets Latin America Index has risen 40% this year, while the broader iShares MSCI Emerging Markets ETF has increased by 11%, both outperforming gains in the U.S. market. Lastly, Gupta mentioned that for wealthier clients, alternative assets are another way to diversify a portfolio. Gold can serve as a hedging tool. She suggested allocating up to 5% of funds to purchase gold based on clients' portfolio needs. This article is reproduced from "Wall Street Watch," author: Huang Junzhi; GMTEight editor: Chen Siyu.