J.P. Morgan Morning Briefing: Technology Rebound and Easing Geopolitical Risks Support Risk Appetite; Remain Bullish on Global Equities with Focus on AI, Semiconductors, Drones, and European Rates Opportunities

Overview

This report is the international market intelligence morning briefing from J.P. Morgan's Data Assets & Alpha Group, covering macroeconomics, equities, rates, commodities, foreign exchange, options, and thematic investing. Its core conclusion is that easing geopolitical tensions combined with a technology-stock rebound has improved market risk appetite, but some momentum and crowded trades have begun to de-risk, requiring stronger hedging while maintaining a bullish stance on global equities.

Core views

The report's core views include: First, cooling Iran-related tensions have driven oil and rates lower, but the situation between Russia and Ukraine requires continued monitoring, particularly the impact of drones and damage to Russian refining capacity on modern warfare and energy supply. Second, the correction in technology and artificial intelligence provides a lower base for the second-quarter earnings season, and semiconductor and semiconductor-equipment companies may continue to raise earnings expectations. Third, European rates have been excessively repriced due to geopolitical risks, giving German and UK 10-year bonds attractive tactical long risk-reward. Fourth, global equities remain favored, but thematic allocation should incorporate long-term themes such as AI, cybersecurity, physical AI, clean energy, modern warfare, critical minerals, consumer, and healthcare. Fifth, high-growth stocks, crowded longs, and momentum strategies previously performed strongly, but fund flows and positioning from late June to early July have shown signs of cooling, requiring attention to mean-reversion risk.

Analysis framework

The report combines macro event monitoring, market price movements, strategists' rates frameworks, earnings-expectation revisions, fund flows, market positioning, crowding, leverage, social-media sentiment, and thematic performance to assess multi-asset trading opportunities. The analysis starts with short-term market drivers and then extends to rates, equity sectors, regional allocation, thematic investment, and options hedging.

Methodology notes

• Market Positioning and Fund FlowsJ.P. Morgan positioning and flow analysis

  Use high-frequency trading data, Prime reports, ETF flows, and retail sentiment indicators to monitor crowding, leverage, fund flows, and alpha performance.

  This framework is used to assess the positioning crowding of high-growth stocks, crowded longs, momentum assets, regional equities, and industry themes, as well as potential de-risking or mean-reversion risks.

• Rates StrategyJ.P. Morgan money market fair value framework

  Use the money-market fair-value framework to decompose the sources of changes in German 10-year yields.

  Based on this framework, the report concludes that the recent rise in German yields was mainly driven by repricing of expectations for European Central Bank tightening and believes that the tactical risk-reward for medium-term duration has improved.

• Thematic Investingsuper-cycle thematic framework

  Build long-term thematic allocations around artificial intelligence, cybersecurity, physical AI, clean energy, modern warfare, and critical minerals.

  The report treats these long-term themes as core directions for international equity portfolios while warning that sector rotation and significant volatility may occur over the coming weeks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global equities

  Core bullish asset

  Strengths

  The technology rebound, AI capital-expenditure signals, upward semiconductor earnings revisions, and European policy reopening support risk appetite.

  Weaknesses

  Momentum and crowded trades face pullback risk, while fund flows in some regions lack conviction.

  Comparison

  The United States appears overheated, Europe is in a gradual recovery, and Asia combines growth and rotation characteristics.

  Risks

  Renewed geopolitical escalation, disappointing earnings guidance, momentum mean reversion, and high volatility.

• German and UK 10-year government bonds

  Tactical long opportunity

  Strengths

  The report believes that the recent rise in rates driven by geopolitical factors has gone too far and that medium-term duration offers improved risk-reward.

  Weaknesses

  Yields could remain under pressure if energy prices or central-bank tightening expectations rise again.

  Comparison

  German yields are near the upper end of their recent range, while front-end UK rate-hike expectations are considered unlikely to exceed 50–55 basis points.

  Risks

  Renewed tightening expectations from the European Central Bank or Bank of England, and tail events in energy markets.

• Semiconductors and semiconductor equipment

  Core beneficiary of the AI ecosystem

  Strengths

  Second-quarter results, third-quarter guidance, and fiscal 2027 expectations are viewed favorably; earnings expectations and valuations have been revised significantly higher over the past two earnings seasons.

  Weaknesses

  The sector has already corrected 13%–15% recently and remains sensitive to crowded trades and fund-flow volatility in the short term.

  Comparison

  Korean technology stocks continue to lead the earnings-expectations upgrade cycle; ASML and TSMC earnings are important milestones.

  Risks

  A slowdown in AI capital expenditure, disappointing earnings, and valuation digestion.

• Taiwan drone industry

  Beneficiary of the modern-warfare theme

  Strengths

  Taiwan's drone exports are growing rapidly, while defense demand from Europe and the United States offers long-term growth potential.

  Weaknesses

  Government funding support remains uncertain.

  Comparison

  The Czech Republic and Poland are the main buyers, while EU drone and counter-drone projects reinforce demand signals.

  Risks

  Changes in geopolitical conflicts, uncertainty over defense-budget execution, and supply-chain expansion risks.

• Gold

  Hedge and long allocation

  Strengths

  The report recommends going long gold to hedge geopolitical, dollar, and risk-asset volatility.

  Weaknesses

  If real yields rise or risk appetite remains strong, gold's relative appeal may decline.

  Comparison

  Together with momentum put options and dollar structures, gold forms part of a defensive portfolio.

  Risks

  A dollar rebound, rising rates, and declining safe-haven demand.

• U.S. healthcare sector XLV

  Low-volatility and sentiment-recovery opportunity

  Strengths

  It has outperformed SPY by approximately 12% since early June, while retail investor enthusiasm continued to improve during June.

  Weaknesses

  It remains approximately 5% behind SPY year to date, and overall sentiment remains below its late-2025 peak.

  Comparison

  The report also favors EU pharmaceuticals as a low-volatility allocation direction.

  Risks

  Policy and regulatory developments, an unsustained earnings recovery, and sentiment deterioration.

• High-growth stocks and crowded longs

  Strong but pullback-prone trading direction

  Strengths

  High-growth stocks rose 4.2% in June and 11.1% year to date, while the U.S. crowded long portfolio achieved an average monthly return of 12.4%.

  Weaknesses

  The U.S. momentum index has fallen approximately 17% from its peak, and the positioning trend has begun to weaken.

  Comparison

  Alpha returns/spreads were positive in APAC, North America, and EMEA, but the U.S. technology crowded strategy was the most pronounced.

  Risks

  Crowded-trade reversals, weakening fund flows, and seasonal deleveraging.

Key data

• June performance of high-growth stocks+4.2%High-growth stocks performed strongly in June, bringing their year-to-date gain to +11.1%.
• June performance of the MSCI AC World Index-0.8%Overall equity-market performance was weaker than that of high-growth stocks.
• APAC alpha return/spread+6.4%Alpha returns/spreads were positive across all regions, with APAC the highest.
• North America alpha return/spread+3.7%North America also recorded a positive return/spread.
• EMEA alpha return/spread+0.7%The positive return/spread in EMEA was relatively low.
• Average monthly return of the U.S. crowded long portfolio+12.4%The highest level in the past four years.
• Return spread of the top 10 technology longs versus the top 10 technology shortsApproximately 40%This shows that the U.S. technology crowded strategy performed exceptionally well.
• Change in the U.S. TPM IndexFell from approximately the 60th percentile to approximately the 40th percentileDeclined by 0.9 standard points over approximately four weeks from the end of May to the end of June.
• Total borrowing percentile92nd percentile over 12 months / 98th percentile over 5 yearsAlthough borrowing rates may have peaked, absolute borrowing remains elevated.
• U.S. momentum index drawdownDown approximately 17% from the June 22 peakMomentum positioning has begun to weaken but remains elevated.
• AxJ L/S ratioApproximately the 95th percentilePositioning in Asia ex-Japan remains high.
• Japan TPM IndexApproximately the 82nd percentileStill high but trending downward.
• China/Hong Kong TPM IndexBelow -1.5x leveragePositioning is low but buying has emerged recently.
• Russian refining capacityFell to 3.8 million barrels per day in June, down 1.5 million barrels per day from JanuaryRussia has become one of the important factors behind unusually weak global refining activity.
• Brent crude referenceCurrently below $80 per barrelThe report compares this with the previous scenario of above $90 per barrel to illustrate that European rates pricing is too high.
• XLV year-to-date performance relative to SPYUnderperformed by approximately 5%The U.S. healthcare sector remains behind the S&P 500 ETF year to date.
• XLV performance relative to SPY since early JuneOutperformed by approximately 12%Improving retail investor sentiment has been associated with stronger short- and medium-term performance.
• Scale of EU drone and counter-drone projects€3.5 billion to €5.0 billionEuropean Commission projects support the outlook for Taiwan's drone supply chain.
• Taiwan drone exportsFirst-quarter 2026 exports already exceeded the full-year 2025 figureThe Czech Republic and Poland are the main buyers.
• Potential government funding support for Taiwan's drone industryCould reach $6.5 billionFunding support remains uncertain but could drive industry expansion.

Impact & implications

For portfolios, the report supports maintaining global equity risk exposure but shifting from simply chasing momentum toward more selective thematic and regional allocation. AI, semiconductors, Taiwan drones, EU policy reopening, EU pharmaceuticals, Korean consumer stocks, and gold remain attractive for allocation; however, elevated U.S. technology crowding, high momentum positioning and drawdown risk, European rates repricing, geopolitical events, and energy tail risks require investors to use options, gold, and dollar structures for protection.

Risks

• An escalation in the Russia-Ukraine situation could renew geopolitical risks and affect drones, defense, energy, and European rates.
• If Iran-related technical consultations deteriorate, crude oil prices and risk assets could come under renewed pressure.
• If European Central Bank or Bank of England tightening expectations continue to rise, German and UK duration longs could incur losses.
• If AI and semiconductor earnings fail to meet optimistic expectations, the technology rebound could reverse.
• U.S. technology, momentum, and crowded long positions could still experience mean reversion and de-risking.
• A major upside tail event in energy markets would alter views on rates, inflation, and equity allocation.
• Challenged sectors such as Asian consumer electronics, automobiles, chemicals, and health technology could weigh on regional rotation performance.

What to watch

• China's trade data, GDP, retail sales, home prices, IP, and FAI data.
• U.S. CPI, PPI, retail sales, and the University of Michigan Consumer Sentiment Index.
• Earnings from major U.S. banks, NFLX, ASML, TSMC, and DAL.
• Federal Reserve Chair Waller's testimony before the House Financial Services Committee.
• South Korea's rate decision, the European Central Bank blackout period ahead of its July meeting, and euro-area CPI.
• OPEC's monthly oil report and the International Energy Agency's Global Critical Minerals Outlook.
• Russian refining capacity, Ukrainian drones, and NATO-related statements.
• The U.S. momentum index, TPM positioning, total borrowing, ETF fund flows, and crowded long performance.
• The World Artificial Intelligence Conference and guidance from companies related to AI capital expenditure.