Tech giants' big move on US stocks is likely to continue, absent a major market crash along the lines of what investors endured in 2022, says David Kelly of JPMorgan Asset Management.

The firm's chief global market strategist is among Wall Street professionals who expect earnings growth in the S&P 500 Index widen beyond the tech giants by the end of the year. But it likely won't be enough to close the wide performance gap between these megacap stocks and the rest of the U.S. equity benchmark, he said.

That means an extreme blow to market sentiment would be needed to stem the flow of money into the big tech names that have driven the market's advance in 2024, said Kelly, whose firm manages about $3 trillion. . Two years ago, for example, tech stocks were crushed by the Federal Reserve's aggressive tightening and fell more than the broader market.

“When you have the next bear market, then I think the top stocks are the ones that are going to get beat the most as they actually were in 2022,” Kelly said in an interview. “You have to hit the market sentiment in order to disrupt the pattern we're seeing in terms of how people are using their money.”

Big tech companies have sat atop the stock market for years, but their grip has never been as tight as it is now. A version of the S&P 500 that makes little distinction between Microsoft Corp. and Macy's Inc., has lagged its peers by 10 percentage points this year, a record January-June underperformance, data compiled by Bloomberg show.

Earnings growth for Big Tech stocks is largely expected to slow, while the rest of the S&P 500 is poised to see earnings accelerate, according to many forecasters. Strategists at firms including Morgan Stanley and Bank of America Corp. have said the change will help lift the rest of the stock market.

Kelly predicts that the narrowing earnings gap won't be enough to dampen enthusiasm around artificial intelligence anytime soon. To be sure, for investors with a longer horizon, he recommends looking for opportunities outside of Big Tech, given how stretched those stocks' valuations are.

Take the S&P 500 Information Technology Index, which in June traded at 31 times expected earnings over the next 12 months, compared with a multiple of 21 for the entire S&P 500. That 10-point gap is the largest since 2003 , data compiled by Bloomberg. show.

“What I think is driving the market is this psychology of the moment,” he said. “When you have a particular theme, only a few of those names in the theme seem to attract money – and a slow change in the distribution of profits will not really be noticed by the markets or in the psychology of investors.”

There are few signs, for now, of this momentum waning. Investors are mostly expecting a soft rate cut, with solid economic data, the Fed on track to cut rates and ease inflation.

It's a “boring” backdrop, Kelly said, adding that “boring is very good for the markets.”