The S&P 500 still has 12% upside with spiking yields set to stabilize amid strong earnings, JPMorgan's global markets chief says

• JPMorgan's Marko Kolanovic told CNBC spiking yields will stabilize and help left stocks through 2021.
• The firm's chief global markets strategist doesn't see the recent rate rise that sent the 10-yr to 1.75% continuing.
• Kolanovic also expects portfolio rebalancing and strong earnings in the US to propel the S&P 500 12% higher.
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The S&P 500 has significant room to run for the rest of 2021 as strong earnings and stabilizing yields push the stock market higher, JPMorgan's Marko Kolanovic told CNBC on Thursday.

The chief global markets strategist has a 2021 year-end price target of 4,400 for the benchmark index, and he anticipates yields to stabilize and lift stocks including technology stocks higher.

Kolanovic noted that the recent weakness in tech stocks was driven by higher yields. On Thursday theNasdaq dropped 3%, the same day the 10-year US Treasury yield hit 1.75%, the highest level in over a year.

Rates have risen as investors begin to fear that massive fiscal stimulus in the US will cause inflation, causing the Federal Reserve to raise interest rates sooner than expected.

But Kolanovic doesn't see that rate rise continuing much longer.

"We are now coming into the month-end and quarter-end time period where there is a lot of rebalances" in bond-equity portfolios, the strategist explained. Inflows into bonds will limit the rise in yields, which move inversely to prices.

He added: "Now, some of these portfolios may sell equities, which would put some downward pressure. However, if yields stabilize and if yields tick lower, you will just see, actually, Nasdaq and some of the yield-sensitive stocks move higher, which we think is going to more than compensate for some of these equity outflows."

The stabilization of yields and flows will support both bonds and stocks, and he especially sees momentum flows into energy stocks helping to lift that lagging sector higher.

He also said he expects strong earnings momentum to drive the S&P 500 higher. Kolanovic expects that the US economy will be "pretty close to normal" by the summer and lift earnings.

JPMorgan is overweight cyclical stocks, value stocks, and emerging markets stocks, which will benefit if inflation picks up. However Kolanovic sees inflation remaining steady and doesn't think the US will see "runaway inflation."

Read more: JPMorgan says buy these 50 beaten-down stocks as traders continue to flee high-flyers and pile into cheaper names