JPMorgan predicts a 10% rally for the S&P 500 and names the U.S. sectors to watch

Key Points
  • JPMorgan Private Bank forecasts that the S&P 500 would rise to 3,750 by September 2021.
  • This represents a potential 10% jump from its last close. 
A trader walks by the New York Stock Exchange.
Spencer Platt | Getty Images

Industrial and construction material stocks will be among the sectors that will benefit as U.S. markets hit fresh highs over the next year, JPMorgan Private Bank's Grace Peters told CNBC on Tuesday. 

Peters, head of equities strategy at the wealth management arm of the U.S. bank, told CNBC's "Squawk Box Europe" that investors should be adding cyclical exposure to their investment portfolios in the next 12 months, to benefit from the economic recovery following the coronavirus crisis

While there will also be further bouts of stock market volatility, she recommended using share price falls to add more cyclicality — which are stocks that see their prices move in line with economic cycles. 

More specifically, JPMorgan is advising investors to add cyclicality within areas of business that are seeing "structural growth," such as digital transformation and health-care innovation, as well environmentally driven trends. 

Add to cyclical exposure in the year ahead: JPMorgan

The private bank forecasts that the S&P 500 would rise to between 3,500 and 3,600 points by the end of this year and then 3,750 by September 2021, representing a potential 10% rise from its last close at nearly 3,352 points. 

In addition to technology and health care, Peters said this market rally would broaden out to other sectors such as industrial and construction material stocks.

"We think certainly that the U.S. markets can make new highs over the next 12 months … we still think the earnings picture for the U.S. corporate is very strong … and also it's that broader economic backdrop when we look at equities relative to other asset classes," she told CNBC. 

"So U.S. equities to us, we can see around a 10% upside over a 12-month view," she added. 

U.S. election

Peters said the outcome of the upcoming U.S. election, in terms of whether President Donald Trump or Democratic nominee Joe Biden would win, was "unlikely to materially drive share prices" longer term. This was based on JPMorgan's analysis of markets in the years of U.S. elections going back to the 1930s. 

She said company earnings were more important in driving share prices. 

In addition, Peters said JPMorgan was focusing on businesses that are benefitting from increased government spending, on issues like environmental, social and corporate governance, or ESG. This was particularly the private bank's focus in European equity markets, she said. 

However, Peters suggested it was important not to look just at the more obvious "pure plays" or "market leaders" when it came to investing according to a theme, like ESG. 

She pointed to businesses in "transition," such as energy companies moving to cleaner sources of power like wind and solar. 

Mobility was another example Peters offered, with the shift to electric vehicles.

JPMorgan: We're positive on U.S. industrial and construction material companies