JPMorgan analysts expect corporate earnings momentum to remain supportive for equities despite higher government bond yields, inflation pressures and expectations for further monetary tightening.
Key Investor Takeaways
- Rising bond yields are increasing competition between fixed-income assets and equities, potentially putting pressure on stock valuations.
- JPMorgan nevertheless sees continued earnings growth as a factor that may limit the impact of higher borrowing costs on equity markets.
- Inflation remains central to the outlook, with the bank’s assessment dependent on longer-term inflation expectations staying anchored.
- Oil-price pressures related to the Iran conflict and potential rate increases from the Federal Reserve and European Central Bank are among the near-term macro risks.
- JPMorgan also sees improving activity outside the technology sector as evidence that corporate momentum is becoming broader.
Why Equity Markets Are in Focus
Global government borrowing costs have risen toward levels not seen in decades as markets price in inflation risks, higher interest rates and concerns about government debt.
The Iran conflict has added another variable through higher oil prices, which have contributed to inflationary pressure and increased expectations for tighter monetary policy.
Those conditions have revived questions about whether rising yields could trigger a broader equity-market correction. Higher fixed-income returns can reduce the relative appeal of stocks, particularly when investors reassess the valuations they are willing to pay for future corporate earnings.
Why This Matters for Investors
JPMorgan’s argument rests on the difference between the current earnings environment and the conditions that accompanied the 2022 monetary tightening cycle.
“This is in a huge contrast to 2022, where central banks had to tighten very significantly, in turn resulting in a sustained fall in equity prices through that year,” the analysts said.
Corporate profits are currently “on an uptrend,” according to JPMorgan. The bank therefore sees earnings momentum as potentially providing support even if higher yields periodically weigh on equity prices.
The analysts also pointed to improving corporate confidence, increased global manufacturing activity outside China and a recovery in U.S. non-tech capital expenditure and structures.
JPMorgan said continued improvement in the second-half macroeconomic outlook could provide scope for “further equity upside,” although that assessment remains conditional on inflation expectations staying under control.
What to Watch Next
The interaction between inflation and monetary policy is likely to remain central. Upcoming Federal Reserve and European Central Bank decisions could influence both bond yields and equity valuations.
Oil prices are another key variable because further increases could add to inflation pressures. Corporate earnings and non-tech economic activity will meanwhile indicate whether the broader fundamental momentum highlighted by JPMorgan is continuing.
The analysts said investors “should continue using the dips” to “add” to positions. That reflects JPMorgan’s market strategy view rather than investment advice.
