J.P. Morgan: AI-Fueled Equity Rally to Continue Despite Rate Hikes

The US stock market rally is expected to continue despite an interest rate hike by the Federal Reserve. According to J.P. Morgan, AI capital expenditures and corporate profits will remain the core driving forces supporting the equity market.

However, fiscal deficits, increased Treasury supply, and rising term premiums are pushing long-end yields higher. The real concern is when the 10-year US Treasury yield rapidly approaches or breaks through 5.5%-6%, which could significantly impact high-valuation growth stocks.

The J.P. Morgan Strategy Research Division's 2026 Global Macro Conference held on September 10 concluded that, in this current cycle, equities and long-term US Treasury yields can rise simultaneously. The expansion of AI capital expenditures and corporate profits is expected to support the equity market, while rising long-end yields are driven by fiscal supply and term premium.

The main constraints on AI investment are shifting from demand to power, transmission, land, and regulatory approvals. J.P. Morgan projects that cumulative AI capital spending could reach $5.5 trillion by 2030, with a significant portion of it translating into productivity growth.

Rising long-end yields are not unique to the US, as European yields have also risen. Geopolitics could push inflation higher through oil prices, and domestic 'affordability politics' in the US could further fuel fiscal expansion.