The rally in equities will come under pressure in the second half of the year if gains in growth shares stall and rotation into cyclicals doesn’t continue, according to JPMorgan Chase & Co. strategists.

In this context, the strategists led by Mislav Matejka said that while they remain overweight growth versus cheaper, so-called value stocks, they believe defensive sectors offer a more appealing risk-reward for the rest of this year. Health care, staples and utilities are some of the sectors they recommend.

“If growth stalls in absolute terms, and cyclical rotation does not get a fundamental support, then the overall market could come under pressure in the second half,” Matejka’s team wrote in a note on Monday.

The strategists said that while they don’t recommend chasing bounces in cyclical value shares, the upside in growth and technology stocks is also capped as tech appears overbought relative to bond yields and historical price-to-earnings levels. Matejka turned cautious on the outlook for stocks toward the end of last year after remaining positive for much of 2022 while stocks were plunging.

This year’s strong rebound in US stocks has been led by a narrow group of big tech companies as investors latched onto their profit growth resilience amid bets on artificial intelligence. The JPMorgan strategists said the fact that the market “is still extremely concentrated” is “typically unhealthy.”

--With assistance from Sagarika Jaisinghani.

This article was provided by Bloomberg News.