On September 10, 2025, JPMorgan Chase released its "Global Equity Strategy Update Report," focusing on current market "Wall of Worry" conditions and AI sector developments. The report indicates that despite growth headwinds from tariffs and immigration factors, US companies continue achieving healthy profit growth through rapid AI penetration, robust capital expenditure, and resilient consumer spending. However, short-term vigilance is needed regarding inflation rebounds and high valuation risks, while maintaining optimism for medium to long-term market potential driven by AI and policy benefits.

**I. US Stocks: Strong Earnings but Short-term Pressure, Watch August CPI Data**

**1. Four Key Drivers Supporting US Stocks**

JPMorgan Chase identifies four core supports for current US corporate earnings growth:

**AI Acceleration**: AI technology penetration drives efficiency improvements, becoming a key engine for profit growth.

**Strong Capital Expenditure (Capex)**: Robust corporate investment appetite lays the foundation for long-term growth.

**Consumer Resilience**: As of August 29, US consumer spending grew 4.1% year-over-year (year-to-date +3.6%), with discretionary consumption (+5.3%) and Gen Z/Millennial spending (+7.0%) as primary drivers.

**Weaker Dollar**: Benefits export companies and indirectly boosts profits.

Additionally, upfront spending from the Infrastructure Investment and Jobs Act (IIJA) is partially offsetting growth headwinds from tariffs and immigration.

**2. Three Short-term Risks to Watch**

Despite strong fundamentals, after the S&P 500's best non-recession performance in nearly 20 years, short-term risks have emerged:

**High Positioning and High Valuations**: Investor positioning at elevated levels, market valuations expensive, with increased speculative behavior in high-beta stocks.

**Inflation Rebound Pressure**: Tariff-driven inflation beginning to rise, potentially limiting Federal Reserve rate-cutting path (market currently expects 6 cuts by end-2026). The upcoming August CPI data represents a key risk point.

**Seasonal Weakness**: September-October historically represents weaker periods for US stock performance.

JPMorgan Chase suggests investors can hedge CPI risk through options tools - current CPI and FOMC implied volatility below historical levels allow purchasing 99%-98% put spreads expiring September 19 (cost only 0.174%), covering both major risk events with potential leverage of nearly 6x (S&P 500 reference level 6498).

**II. AI Sector: 43% of S&P 500 Market Cap, Becoming Absolute Core Driver**

**1. AI Stocks Dominating US Market Performance and Earnings**

Approximately 30 AI-related stocks in the S&P 500 collectively represent 43% of the index's market capitalization and have contributed virtually all S&P 500 gains and most earnings growth since ChatGPT's launch in November 2022.

**2. Trillion-Dollar Investment Scale-up, Future Growth Expected**

Over the past year, these AI companies invested approximately $800 billion combined in capital expenditure and R&D (50% each), with investment spending projected to grow 33% over the next 12 months.

JPMorgan Chase's "AI/Data Center/Electrification" basket (JPAMAIDE index) consistently outperforms the market - this index's peaks, troughs, and new highs all precede the S&P 500, successfully defending its 50-day moving average last week. The report notes that if this index breaks below its 50-day moving average, it could trigger broader market correction.

**III. Consumer Spending and Buybacks: US Stock Market's "Twin Pillars"**

**1. Consumers: Low Debt + Rate Cut Catalyst for Spending**

US consumers currently enjoy their best financial condition in nearly 60 years: household debt-to-asset ratios have fallen to their lowest levels since the 1960s, primarily due to wealth and asset price appreciation since 2020.

If this ratio returns to historical averages, it could release approximately $2 trillion in incremental credit, further supporting consumption and asset purchases. The report expects future rate cuts to serve as consumption catalysts, especially if housing turnover rates improve in coming quarters.

**2. Buybacks and Shareholder Returns: Record Scale Absorbing Supply**

S&P 500 stock buyback announcements year-to-date have reached $958 billion, far exceeding the past three-year average of $644 billion for the same period (equivalent to approximately $5 billion in buybacks per trading day).

Combined with $700 billion in dividends, total shareholder returns ($1.2-1.3 trillion buybacks + $700 billion dividends) now exceed the total market capitalization of most countries including Australia, South Korea, and Italy.

Large-scale buybacks and dividends effectively absorb market stock supply, becoming an important force supporting US stock valuations.

**IV. Inflation and Policy: IIJA Act Provides Support, CPI Becomes Short-term Key**

**1. Inflation Risk: Tariffs Boost Durable Goods Inflation, August CPI Potential "Black Swan"**

JPMorgan Chase's proprietary inflation leading indicator (Quantitative Inflation Index, QI) shows US inflation trending upward, with tariff impacts on durable goods inflation beginning to materialize.

If August CPI data exceeds expectations, the current "Goldilocks" market environment (soft data benefiting rate cut expectations) may face adjustment, with high-leverage, low-volatility, highly crowded risk assets bearing the brunt.

Historical data shows US stocks perform significantly worse during inflationary periods versus disinflationary/stable periods: during the 1966-1980 inflationary phase, the S&P 500 gained only 2% annually after inflation adjustment, while during the 1981-1995 disinflationary phase, annual gains reached 12%.

**2. Policy Benefits: IIJA Act Upfront Spending Supporting Growth**

Upfront spending from the Infrastructure Investment and Jobs Act serves as key offset to growth headwinds. The report projects the act will generate $373 billion in additional deficit spending (current policy basis) during 2025-2026, focused on AI, data centers, electrification, and defense sectors, providing direct benefits to related industries.

**V. Investment Strategy: Short-term Defense, Medium-Long Term Focus on AI and Quality Growth**

**1. Short-term: Avoid High Beta, Focus on Low Volatility and Inflation Beneficiaries**

If inflation rebounds beyond expectations, JPMorgan Chase recommends adjusting portfolio structure:

**Style Level**: Prioritize low volatility stocks over high-beta stocks; prefer quality growth over quality defensive.

**Sector Level**: Focus on inflation-benefiting sectors (banks, insurance, energy), avoid interest-rate sensitive sectors (consumer staples, telecommunications, real estate).

**Tool Level**: Consider JPMorgan Chase's "Inflation Outperform Basket" (JPAMINOP index), focusing on cyclical stocks with high correlation to inflation and commodities, historically outperforming during inflationary periods.

**2. Medium-Long Term: AI Remains Core, S&P 500 Targeting 7000**

JPMorgan Chase projects the S&P 500 could reach 7000 by early 2026, based on:

**Continued AI-Driven Earnings**: AI sector earnings growth far exceeds non-AI sectors, with continued capital expenditure increases.

**Policy and Liquidity Support**: IIJA Act upfront spending implementation, future rate cuts boosting consumption and risk assets.

**Structural Valuation Premium**: S&P 500 maintaining 20+ times valuation (currently 23x PE) through sustained earnings, AI premium, and global quality asset attributes.

**3. Risk Warnings**

**Rising Long-term Rates**: Disorderly increases in long-term rates in developed markets like France, Japan, and the UK could drag down global risk asset valuations.

**High-Beta Stock Corrections**: If rate cut expectations cool, small-mid cap stocks (SMID) and unprofitable companies (including speculative AI stocks) may face significant correction pressure.

**AI Sector Volatility**: If AI stocks break below key technical levels (such as 50-day moving average), it could trigger broader market chain reactions.

**Conclusion**

JPMorgan Chase believes the current market is positioned for "short-term caution, medium-long term optimism": August CPI and September-October seasonal weakness may trigger short-term volatility, but the AI engine, consumer resilience, and policy benefits will support medium-long term US stock uptrends. Investors need to balance defense and offense, closely monitor AI sector developments and inflation data, while capturing opportunities in low volatility, quality growth, and inflation-benefiting stocks.