When will the market frenzy end? JPMorgan trader: Closely watch these three major risks

As market volatility returns, discussions about what might bring the current bull market to an end are increasing.

On October 22, a client memo from J.P. Morgan showed that its traders have started focusing closely on three potential risks that could disrupt the current bull market: massive investment in artificial intelligence, the health of consumer credit, and signs of stress in the corporate sector.

Internal discussions at the bank reveal that the trading team is mainly assessing the sustainability of AI capital expenditures, consumer signals such as rising auto loan default rates, as well as corporate-level issues such as loan asset write-downs by certain banks. These themes have become the key focus in conversations with clients.

However, the bank’s current overall assessment is that these risks are still “tail risks” and do not yet pose a systemic threat. According to its analysts, whether consumer or corporate credit, recent volatility is more of a “normalization return” to pre-pandemic trends rather than a precursor to systemic deterioration. This means that although the market celebrations may continue in the short term, cracks are beginning to appear.

The Financing Gap Amid the AI Investment Boom

The enormous prospects of artificial intelligence are driving tremendous capital expenditure. J.P. Morgan analyst Nikos, citing Nvidia CEO Jensen Huang’s forecasts, notes that data center spending will grow from about $600 billion in fiscal year 2025 to $3–4 trillion by 2030.

From a financing perspective, Nikos believes this scale is “manageable.” He points out that the tech industry can cover this $4 trillion expense with internally generated cash flow, but this most likely means ending stock buybacks and dividend payouts.

If tech companies choose to continue shareholder returns, by 2030, the market will face a financing gap of about $1.6 trillion.

The report offers some reassurance, though. Compared to the internet bubble in the late 1990s, Nikos finds that the financial condition of today’s non-financial companies is “much stronger.”

Consumer Credit: Deterioration or Normalization?

Recently, some clients have voiced concerns about a report stating “auto loan delinquency rates have increased by 50% since 2010.”

However, J.P. Morgan analysts hold a different view. They point out that although delinquency rates have indeed risen, it’s from about 1% to 1.6%, and at the same time, other categories of consumer credit have actually decreased in scale.

More crucially, the share of U.S. household debt servicing costs as a percentage of disposable income is currently about 11.25%, lower than Q4 2019’s 11.73%, and much lower than the peak of 15.85% in Q4 2007.

Therefore, J.P. Morgan characterizes the current changes in credit metrics as “a normalization to pre-pandemic trends, not deterioration”.

Corporate Credit: Individual Events or Systemic Risk?

The health of the corporate sector is also a market focus. The report mentions the $60 million asset write-down announced by Zion Bancorp, which has attracted market attention.

In response, Calvin Chan of J.P. Morgan's credit trading department said they see recent credit “blow-up” events as more “a return to trend” rather than the start of systemic problems. Their strategist team also sees no signs of systemic issues at present.

Looking ahead, strategist Eric Beinstein expects credit spreads to widen by year-end—6 basis points for investment-grade (IG) bonds, and 35 basis points for high-yield (HY) bonds.

They also emphasize that this widening comes against a backdrop of spreads being at historically narrow levels, and current default rates are far below their historical averages. For example, high-yield bond default rates are about 1.4%, significantly lower than the 25-year average of about 3.4%.

Although J.P. Morgan currently classifies these risks as “tail risks,” investors should start watching how tech giants finance their capital expenditures, the real signals of consumer health, and the changes in high-yield bond market spreads. The evolution of these factors will be key to judging whether the market exuberance can persist.

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