JPMorgan Strategist Warns of Shift in Market Trends, Recommends International Diversification

JPMorgan strategist Michael Cembalest has expressed caution on AI stocks in his recent 'Eye on the Market' report, citing a potential shift in market trends. He notes that semiconductor stocks have surged in recent times while hyperscalers have stagnated.

Cembalest compares this trend to what happened during the dot-com boom of 1999-2000, where communications services stocks slowed down even as capital spending beneficiaries continued to thrive.

In particular, Cembalest points out that the iShares Semiconductor ETF has seen a return of 89.75% in the past year, significantly outperforming AI hyperscaler stocks like Alphabet, Amazon, Meta, Microsoft, and Oracle.

While this does not necessarily mean that AI is a bubble waiting to burst or that history will repeat itself exactly, Cembalest suggests diversifying away from the AI trade by investing in international ETFs. He recommends two funds: the Vanguard FTSE All-World ex-US ETF (VEU) and the State Street SPDR Portfolio Developed World ex-US ETF (SPDW).