JP Morgan says S&P 500 ex-Tech/AI far from priced for disappointment

"['Fear of Missing Out'] is in full swing, there is complacency being built into stocks with VIX at the lows of its range," strategist Mislav Matejka and his team said in a research note sent to clients.

"All this suggests that, if the activity momentum does weaken in 2H, relative to the current projections of no/soft landing, stocks are unlikely to shrug it off, or look through, as they are not priced for disappointment anymore, even if one is to fully take out the Tech/AI/FAANG groups from the equation."

Far from it.

On their estimates, the S&P 500 was changing hands on a forwards price-to-earnings multiple of 19.4 times, Technology at 27.3 and non-Tech/AI - which accounted for 65% of the index - at 1.4 times.

Historically, the median multiple was nearer 15.3, so it was now at a 10% premium.

At October's low, when recession was the base case, the S&P 500 was trading on 15.3, Tech at 18.1 and the S&P 500 ex Tech at 14.5.

As well, current valuations needed to be judged in the context of higher rates than those seen in the preceding 10-20 years "and meaningfully higher" at the short end, he said.

Furthermore, relative to bond yields, dividend yields were now less attractive versus their 20-year averages across all developed markets.

"The above considerations add to much higher positioning and more optimistic sentiment than was seen at the start of the year."