After predicting the "bottom," JPMorgan's trading desk turns to "tactical long": Optimistic about the S&P 500 breaking through 7,000 points.

J.P. Morgan’s Market Intelligence team announced a shift to a “tactically bullish” stance, expecting the S&P 500 index to break through the 7,000-point mark, citing the reopening of the Strait of Hormuz by Iran and the potential extension of the ceasefire agreement, which could trigger a round of risk asset revaluation similar to the shift following the “reciprocal tariffs” policy.

Andrew Tyler, head of J.P. Morgan’s Market Intelligence department, stated that the S&P 500 index at 7,000 “feels within reach,” with improved market sentiment, a phase correction in tech stock valuations, and extremely bearish positioning among institutions and CTAs, collectively forming a triple driver for the index’s rise.

According to a previous article by Wallstreetcn, on March 25, J.P. Morgan’s Market Intelligence department ended its three-week “tactically bearish” US stock strategy and shifted to a “neutral” stance; it is also exploring renewed bullish positions in gold, with relatively precise bottom calls.

However, this optimistic assessment is not without dissent. Goldman Sachs Delta One business lead holds the opposite view, believing the current rally resembles a technical rebound driven by short covering, rather than a sustainable trend worth chasing. It recommends clients take profits on rebounds and warns the market still faces potential risk escalation.

Core Assumptions Behind the Tactical Shift

This bullish turn is based on two key premises: First, Iran reopens the Strait of Hormuz; second, both sides in the conflict can renew the ceasefire agreement in two weeks.

Andrew Tyler pointed out that if these conditions are met, the market will likely see the ceasefire as a de facto end to the conflict, even though economic damage in the regions will continue to emerge. However, since both sides have repeatedly breached the ceasefire agreement throughout the day, “this is a generous assumption.”

Normalizing traffic through the Strait of Hormuz will directly impact the energy market and the inflation trajectory.

Recently, oil prices may remain relatively high due to lingering geopolitical risk premiums, but the negative transmission of energy shocks to inflation and the consumer side “will take time to show up in data.” Investors are advised to closely watch employment and consumption data.

Asset Allocation Roadmap: Weaker Dollar, Rising Stocks, Bearish Energy

At the asset level, bond yields are expected to decline, oil and energy prices are likely to fall sharply, the dollar will weaken, credit spreads will narrow, and equities will rise across the board.

Within equities, small caps are expected to lead, followed by the Nasdaq 100 and the S&P 500. Among sectors, tech and cyclical stocks are preferred; the “tech seven giants” and semiconductor stocks are considered to have explosive upside potential. Among cyclicals, the consumer sector offers the greatest near-term upside, especially discretionary targets such as homebuilders and retailers.

Regarding financials, J.P. Morgan believes that if Trump facilitates an agreement or a policy shift, combined with improving macro conditions, strong earnings expectations, a bullish steepening in yields, and below-average positioning, the sector could embark on a sustained rebound lasting several weeks.

Precious metals are expected to benefit from a weaker dollar and see a strong rebound; mining shares may also benefit from recent adjustments to metals tariffs policies. Energy stocks are the core short targets. In terms of regional distribution, a “broad rally” is expected, led by Asia-Pacific, followed by Latin America, the EU, and the US; emerging markets are expected to outperform developed markets.

Extremely Bearish Institutional Positions Fuel the Rebound

Institutional investors’ pessimism is now comparable to last April, and this oversold state itself provides technical support for a rebound.

Specific indicators show:

Hedge funds’ net leverage is down 25 percentage points from its 12-month high, among the largest drops in history;

Hedge funds’ ETF short volume is at about 2 standard deviations;

Retail investors have net sold individual stocks in 7 out of 8 consecutive trading days, and social media sentiment indicators are at the 3rd percentile for the past year;

Credit ETFs have been sold off while short-term Treasury ETFs have been sought after, reaching about -2 standard deviations together;

US Tactical Positioning Monitor (TPM) 4-week change dropped to -2.9z on March 20, rebounding to -1.6z at month-end.

Historical data shows that when J.P. Morgan’s US TPM 4-week change hits -2.5 standard deviations or lower, the S&P 500’s next 4-week average return is +4.1%, and the 3-month average return is +8.2%.

When hedge funds’ net leverage drops more than 20 percentage points (end of December 2018, early May 2023, late October 2023, early April 2025), the market subsequently rebounds.

However, it is worth noting that the absolute level of US TPM is still higher than historical lows; hedge funds’ net leverage remains in the 34th percentile of the past 5 years, higher than previous market bottoms; recession and stagflation fears have yet to materially intensify.

Earnings Season Provides Fundamental Support

Optimistic about Q1 earnings season, believing this will further provide fundamental backing for higher stock prices.

Forecast for Q1: revenue growth of 9.7% year-over-year, earnings growth of 13.0% year-over-year, net profit margin of 13.2%.

For reference, Q4 revenue grew 9.4% year-over-year, earnings grew 13.9% year-over-year, marking the highest revenue growth rate since Q2 2022 and the fifth consecutive quarter of double-digit earnings growth, with net profit margin near the historical high around 14%.

Maintains year-end S&P target at 7,200 for 2026, corresponding to EPS of $315; 2027 EPS is forecasted at $355.

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