As market volatility returns, discussions about what might end this bull market are increasing.
On October 22, a communication Minutes from JPMorgan Chase with clients showed that its traders have begun to closely monitor three potential risks that could disrupt the current bull market: massive investments in artificial intelligence, the health of consumer credit, and signs of pressure in the corporate sector.
Internal discussions at the bank indicate that the trading team is focusing on assessing the sustainability of AI capital expenditures, rising auto loan default rates as consumer signals, and issues at the corporate level such as credit asset write-downs at some banks. These themes have become the focus of their communication with clients.
However, the bank's current overall judgment is that these risks still fall within the category of &#34;tail risks&#34; and do not yet pose a systemic threat. According to analysts, the recent fluctuations in both consumer credit and corporate credit are more a &#34;normalization return&#34; to pre-pandemic trends rather than a sign of systemic deterioration. This means that while market exuberance may continue in the short term, potential cracks have already appeared.
<h2>Financing Gap Amid AI Investment Boom</h2>
The enormous prospects of artificial intelligence are driving astonishing capital expenditures. JPMorgan Chase analyst Nikos cited NVIDIA CEO Jensen Huang's prediction in his report: data center spending is expected to grow from about $600 billion in fiscal year 2025 to between $3 trillion and $4 trillion by 2030.
From a financing perspective, Nikos believes this scale is &#34;manageable.&#34; He pointed out that the tech industry has the ability to cover this $4 trillion expenditure through internally generated cash flow, but this likely means the need to end stock buybacks and dividend payouts.
If tech companies choose to continue maintaining returns to shareholders, then by 2030, the market will face a financing gap of about $1.6 trillion.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/67bcd30c-a1ab-465a-9756-78dcb29c22df.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/67bcd30c-a1ab-465a-9756-78dcb29c22df.png"/>
However, the report also brings a glimmer of comfort. Compared to the internet bubble period of the late 1990s, Nikos found that the current financial condition of non-financial corporations is &#34;much stronger.&#34;
<h2>Consumer Credit: Deterioration or Normalization?</h2>
Recently, some clients expressed concern over a report stating that &#34;auto loan delinquency rates have increased by 50% since 2010.&#34;
However, JPMorgan Chase analysts have a different view. They pointed out that while delinquency rates have indeed risen, this is from a low of about 1% to 1.6%, while the scale of other categories of consumer credit has declined during the same period.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1163ec3a-c1ba-4809-a982-b62e8f6c0338.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1163ec3a-c1ba-4809-a982-b62e8f6c0338.png"/>
More critical data shows that the proportion of U.S. households' debt repayment expenditures to disposable income is currently about 11.25%, down from 11.73% in the fourth quarter of 2019, and far below the peak of 15.85% in the fourth quarter of 2007
Therefore, JP Morgan characterizes the current changes in credit indicators as &#34;normalization towards pre-pandemic trends rather than deterioration.&#34;
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/56a6f9fd-8084-450d-8545-104aa91d3cc2.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/56a6f9fd-8084-450d-8545-104aa91d3cc2.png"/>
<h2>Corporate Credit: Individual Events or Systemic Risks?</h2>
The health of the corporate sector is also a market focus. The report mentions that the $60 million asset write-down announced by Zion Bancorp has attracted market attention.
In response, Calvin Chan from JP Morgan's credit trading department stated that they believe the recent credit &#34;blow-up&#34; events are more a manifestation of &#34;returning to trend&#34; rather than the beginning of systemic issues. Their team of strategists also believes that there are currently no signs of systemic problems.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/02e615f1-50ec-43a8-96da-7c242b22a5a1.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/02e615f1-50ec-43a8-96da-7c242b22a5a1.png"/>
Looking ahead, strategist Eric Beinstein expects that by the end of this year, credit spreads will widen—investment-grade (IG) bond spreads will widen by 6 basis points, and high-yield (HY) bond spreads will widen by 35 basis points.
However, they also emphasize that this widening occurs against the backdrop of spreads being at historically narrow levels, and the current default rate is far below the historical average. For example, the default rate for high-yield bonds is about 1.4%, significantly lower than the approximately 3.4% 25-year historical average.
Although JP Morgan currently defines these risks as &#34;tail risks,&#34; investors should begin to pay attention to the financing methods of capital expenditures by tech giants, the real signals of consumer health, and the changes in spreads in the high-yield bond market. The evolution of these factors will be key to determining whether the market euphoria can continue

JPMorgan Chase traders are closely monitoring three potential cracks: trillion-dollar capital expenditures in the AI sector could lead to a significant financing gap, rising default rates on auto loans within consumer credit, and signs of write-downs in corporate credit. However, the bank assesses that these currently remain "tail risks," with fluctuations in consumer and corporate credit more likely a "normalization return" to pre-pandemic levels, and systemic risks have not yet emerged

- As market volatility returns, discussions about potential risks to the current bull market are increasing, with JPMorgan identifying three main concerns: AI investments, consumer credit health, and corporate sector pressures.  
- Analysts believe these risks are currently "tail risks" and not systemic threats, viewing recent credit fluctuations as a normalization rather than a sign of deterioration.  
- Investors are advised to monitor the financing of tech giants' capital expenditures, real signals of consumer health, and changes in high-yield bond spreads to assess the sustainability of market exuberance.

When will the market frenzy end? JP Morgan traders: closely monitor these three major risks