2025 has shown the 'power of diversification', says JPMorgan's Phil Camporeale

Market Overview - The market is experiencing a positive trend as investors respond to a dovish shift in Federal Reserve policy, particularly benefiting large-cap technology stocks [1] - The stabilization of the market is anticipated to continue into December [1] Economic Indicators - The return to normal market conditions is characterized by global diversification beyond a limited number of U.S. stocks and the potential effectiveness of fixed income in portfolios [2] - The 10-year Treasury note is viewed as a crucial indicator, with current rates reflecting a normal economic environment [3][6] - Rate volatility has reached its lowest levels since the Fed began its rate hiking campaign in March 2022, indicating favorable conditions for U.S. consumers [5] Earnings Growth and Market Sentiment - There is an expectation of double-digit earnings growth in 2026, suggesting a positive outlook for corporate profitability [4] - The market has not priced for perfection, but there is optimism surrounding continued AI spending and its impact on companies' cash flow and earnings [8][9] Sector Allocation - The investment strategy has shifted towards a more neutral stance on technology and communication services sectors, which together represent a significant portion of the S&P 500 [10][11] - Funds are being redirected into sectors such as industrials, utilities, and financials, which are perceived as offering diversification while still being influenced by AI trends [12][13] Investment Strategy - There is a need for careful diversification to balance exposure to high-growth companies while also considering sectors that may provide a different angle on AI impacts [14][15]