JPM: Europe Looking 'Interesting' on Lower Tech Exposure

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00:00How are you feeling though about the broadening of this rally? I got some stats from our own

00:05Daniel Curtis saying that there's only three S&P sectors that are up this month. Tech,

00:09the obvious one, healthcare and utilities. The other remaining sectors are in the red.

00:15Does that concern you about this bull market here?

00:18Well, I think it makes sense in the context of what AI is doing for the US economy.

00:22So there was a very popular trade coming into 2025 where many were saying you need to look

00:26away from the Magnificent Seven and the US mega caps and you need to anticipate this broadening

00:32out of earnings that should then benefit a much wider range of stocks in the US.

00:37Have we seen that in the earnings data so far this year? No, not really. And as you look ahead

00:42into the forecast for 2026, you've got the Mag7 cooling earnings growth towards something around

00:4715% year over year. But for me, the bigger question here is can you really expect to see the rest of

00:54the S&P 500 also delivering mid-teens in earnings growth? Because that for that group is very

01:00unusual. And AI is driving economic growth. We've had tech spend really contributing more to US

01:06growth this year than the US consumer. If that falters, you'd expect broader economic growth to

01:12falter. And that's going to put more pressure further down the S&P 500. Yeah, there was some data

01:15from a Harvard economist that I was reading yesterday from Jason Furman that said if you stripped

01:20out all the data center investment, first half GDP for the US is not 0.1%.

01:26Exactly. Exactly. So this is where I think if you're looking to diversify away from the AI trade,

01:32shuffling around your US allocation no longer really works because we know the 493, particularly

01:38US small caps, which have had a good run over the summer, but they're much more closely geared into

01:42what you're seeing in the US economy. So this for me is where regions like Europe and particularly the UK

01:48start to get more interesting because you have different economic drivers. And fundamentally,

01:53you just have a much, much lower exposure to the tech names, which for 10 years has been a big

01:58problem, but it's starting to look like a much more attractive characteristic.