JP Morgan’s equity strategy team highlights that cyclicals, value shares and small caps have led both European and U.S. markets year to date, maintaining strength even after stripping out large technology and artificial intelligence names. This sustained outperformance has persisted despite geopolitical tensions and runs counter to traditional defensive rotation.

The bank points to a widening discrepancy between cyclicals’ share price advances and softening purchasing managers’ indices in manufacturing and services. This gap, particularly pronounced in Europe, suggests that equity performance may have outpaced underlying economic momentum.

Market breadth measures in both the U.S. and Europe are at fresh lows on a three-month outperforming-stock basis, indicating the rally is increasingly driven by fewer names. Such concentration elevates the risk of a corrective pause if broader participation does not recover.

JP Morgan entered the year overweight value, small caps and cyclicals in international portfolios, while favoring mega-cap technology in the U.S. post-Iran conflict. The bank identifies utilities, consumer staples and pharmaceuticals as attractive defensive alternatives and sees cyclicals resuming leadership if geopolitical risks recede in H2.