Introduction#
JPMorgan is advising investors to consider purchasing stocks during market downturns. The bank believes that the recent sell-off, driven by conflicts in the Middle East, presents a chance to invest rather than a reason to be pessimistic.
Positive Outlook Despite Geopolitical Tensions#
The equity strategy team at JPMorgan, led by Mislav Matejka, remains optimistic about the stock market. They note that despite a sharp recovery in global markets since the onset of the Iran conflict, any further declines due to geopolitical events should be seen as opportunities to increase investments. The team believes that various military, political, and economic factors suggest that a prolonged conflict is unlikely, distinguishing the current situation from the inflationary pressures faced in 2022.
Wage Growth and Interest Rates#
A significant factor in JPMorgan's analysis is the current state of wage growth and inflation. In early 2022, wage growth was above 6%, prompting central banks to raise interest rates aggressively. However, today, wage growth has decreased to around 4%. Additionally, interest rates are now more aligned with historical averages, with the European Central Bank (ECB) at its neutral rate and the Federal Reserve holding steady at 3.75%. The strategists argue that the anticipated rate hikes during the current conflict may be unnecessary, as central banks are unlikely to raise rates amidst a geopolitical-driven energy supply shock that could harm economic growth.
Earnings Growth and Market Leadership#
JPMorgan points to strong earnings momentum as a supportive factor for stocks. For instance, the projected earnings per share (EPS) growth for the MSCI Eurozone in 2026 is about 19%, with positive revisions across various sectors. Globally, emerging markets are expected to see a 45% EPS growth, while the S&P 500 is projected to grow by around 20%. The bank anticipates a broader market leadership compared to last year’s narrow focus on AI stocks, with gains expected from a wider range of sectors, including value stocks and small-cap companies.
Focus on Emerging Markets#
For the second consecutive year, JPMorgan is maintaining its positive stance on emerging markets, highlighting their attractive valuations, which are at a 38% discount compared to developed markets. The bank believes that improving fundamentals and light positioning in these markets further support this outlook.