The Bank’s Strategists Cite an AI-Driven Earnings Surge and a Potential Peace Dividend, but Warn That Speculative Momentum in Secondary Tech Stocks Has Reached Flash-Crash Territory

Wall Street enters its final trading day of the first half on Monday with a picture that looks considerably different from where it stood three months ago. The S&P 500 is up approximately 8% to 9% year-to-date after recovering sharply from its March lows, the Dow Jones Industrial Average sits above 51,900, and JPMorgan Chase — the nation’s largest bank by assets and a fixture of the New York financial landscape since the 19th century — has raised its year-end target for the benchmark index to 7,800, implying roughly 6% additional upside from the index’s recent close near 7,365.

The revised call, published June 24 from the firm’s Park Avenue headquarters, represents more than a routine number change. JPMorgan’s equity strategist Dubravko Lakos-Bujas accompanied the new target with a concession that the firm had been “much too cautious” about earnings expectations. The bank lifted its 2026 S&P 500 earnings-per-share estimate to $350, projecting 29% year-over-year growth — a pace typically seen only in recovery years following economic shocks — and set its 2027 EPS forecast at $390.

Two Forces Behind the Upgrade

The upgrade rests on two converging tailwinds that JPMorgan characterizes as moving the market closer to a “Blue Sky” scenario.

The first is corporate spending on artificial intelligence infrastructure, which has nearly doubled among the technology hyperscalers that dominate the S&P 500’s earnings growth. First-quarter 2026 earnings for S&P 500 companies rose 28.9% year-over-year, with much of that acceleration concentrated in semiconductor firms and data center operators feeding the AI buildout. The Technology Select Sector SPDR Fund has gained approximately 27% since January, making it the standout performer of the first half and the primary engine behind the broader index’s recovery from a difficult first quarter that saw the S&P 500 fall 4.3%.

The second is the evolving geopolitical picture. JPMorgan’s note cites progress in U.S.-Iran negotiations as creating conditions for a “peace dividend” that markets have not fully priced in. The Strait of Hormuz disruptions earlier this year drove oil prices sharply higher in the first quarter and pushed headline PCE inflation to 4.1% annually by May — the highest reading since April 2023, according to data released by the Bureau of Economic Analysis on June 25. A durable resolution would relieve pressure on energy prices and, by extension, on the Fed’s rate calculus. Brent crude has already retreated to around $73.74 per barrel as of last week, well off its earlier peaks.

If both tailwinds hold, JPMorgan suggested the S&P 500’s valuation multiple could expand toward 23 times earnings, which would put the index in the neighborhood of 8,000 — the upper end of its scenario range.

The Flash-Crash Warning

JPMorgan was careful to frame the upgrade alongside a sharp warning. The firm noted that speculative momentum trading in secondary AI-related stocks — companies adjacent to but not central to the AI infrastructure buildout — has become extreme enough to put the market “at risk of a reversal and high probability of a flash crash.” That language is notable from a firm that simultaneously raised its target, and it reflects a tension running through Wall Street’s mid-year outlook: the earnings fundamentals are strong, but the positioning around them has become crowded in specific corners of the market.

The strategists expect market leadership to remain concentrated in large-cap quality growth names and direct AI beneficiaries, reinforcing a dynamic that has characterized markets for much of the past two years. The equal-weight S&P 500 is up about 11% in 2026 — a healthy gain, but more than 300 basis points behind the headline index, underscoring how much of the year’s returns remain tied to a narrow group of mega-cap technology companies.

The Inflation and Rate Backdrop

The week’s PCE data added another layer of complexity. Core PCE, the Federal Reserve’s preferred inflation gauge, came in at 3.4% annually — the highest since October 2023. Consumer spending nonetheless rose 0.7% for the month, beating expectations and suggesting that household demand remains resilient even as prices climb.

JPMorgan expects the Federal Reserve to hold interest rates steady through the remainder of 2026 before potentially pivoting toward rate hikes in 2027. That expectation aligns with the Fed’s own recent signaling under Chair Kevin Warsh, who stressed price stability at the June meeting and whose committee removed any reference to rate cuts from its forward guidance. New York Fed President John Williams echoed that posture in prepared remarks last week, noting that energy-driven inflation pressures should ease if the Strait of Hormuz situation resolves but acknowledging “significant and unpredictable risks” tied to the broader conflict.

A Busy Week Ahead to Close the Half

Monday marks both the final trading day of the second quarter and the first session following the Russell index reconstitution, which took effect after the close on Friday, June 26. The 2026 reconstitution was significant: total market capitalization of the Russell 3000 Index rose 29% to $75.6 trillion from last year’s rebalance, and SpaceX entered the Russell 1000 under a new fast-track entry rule — a development expected to trigger an estimated $22 billion to $27 billion in mechanical buying by index funds.

The holiday-shortened week — markets close Friday, July 3, in observance of Independence Day — also brings June payroll data and the ECB’s annual Sintra conference, where Fed Chair Warsh is expected to appear alongside European and global central bankers. JPMorgan noted that earnings season is approaching quickly, with Nike, Constellation Brands, and General Mills among the companies reporting this week.

At least seven major research firms have raised their S&P 500 targets this month. The median year-end target among Wall Street strategists now sits near 7,850, according to tracking by Yardeni Research — a level that was considered ambitious at the start of the year and now sits within a single quarter’s worth of earnings growth from where the market closed last week.

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