JPMorgan Sees Market Weakness as a Buying Opportunity
JPMorgan is encouraging investors to take advantage of equity market pullbacks, arguing that the recent sell-off driven by Middle East tensions presents an opportunity rather than a signal to turn bearish.
Positive Outlook Despite Geopolitical Volatility
The bank’s equity strategy team, led by Mislav Matejka, remains optimistic on global stocks. Despite a sharp V-shaped rebound since the Iran-related tensions began, they believe any additional weakness caused by geopolitical headlines should be used to increase exposure.
Why This Isn’t Another 2022 Scenario
Strategists highlight key differences between the current environment and the inflation shock seen in 2022. Back then, wage growth—measured by the Atlanta Fed Wage Growth Tracker—was above 6% and rising, forcing central banks into aggressive rate hikes.
Today, wage growth has moderated significantly, trending closer to 4%, easing pressure on policymakers.
Central Bank Policy Less Likely to Tighten Aggressively
Interest rates are now closer to neutral levels, with the European Central Bank near its neutral rate and the Federal Reserve holding rates around 3.75%.
JPMorgan argues that market expectations for additional rate hikes during the conflict are likely overstated. The bank notes that tightening monetary policy in response to a geopolitically driven energy shock would risk harming growth and could be seen as a policy mistake.
Strong Earnings Outlook Supports Equities
Corporate earnings remain a key pillar for the bullish outlook. The MSCI Eurozone is expected to deliver around 19% earnings growth in 2026, supported by positive revisions across sectors such as industrials, financials, and materials.
Globally, emerging markets are projected to see even stronger growth, with earnings expected to rise by approximately 45%. Meanwhile, the S&P 500 is forecast to achieve earnings growth of about 20%.
Broader Market Leadership Expected
JPMorgan does not anticipate a repeat of last year’s narrow rally dominated by AI-related stocks. While the bank still sees upside potential in major tech names and maintains a positive view on semiconductors, it expects broader participation across sectors.
Value stocks and small-cap equities are likely to play a larger role in the next phase of the rally, particularly if the U.S. dollar weakens and bond yields decline.
Emerging Markets Remain Attractive
The bank continues to favor emerging markets for a second consecutive year, citing attractive valuations and improving fundamentals. These markets are currently trading at roughly a 38% forward price-to-earnings discount compared to developed markets, making them a compelling opportunity for investors.
