JPMorgan strategists expect third-quarter earnings to support stocks as profit strength broadens beyond AI. They say S&P 500 forecasts look more reasonable beneath the surface. The bank also says equities could climb into year-end if bond yields peak as reporting begins.
JPMorgan strategists led by Mislav Matejka expect third-quarter earnings to support markets, with strength broadening beyond AI even as investors worry after weeks of volatility. The team says expectations look elevated at face value but appear more reasonable on closer inspection.
S&P 500 hurdle shrinks outside the AI leaders
Consensus for S&P 500 earnings per share growth in the quarter stands at 24% on IBES data. FactSet and LSEG put it at 30% because of an adjustment for a one-off tax charge at Meta.
However, the bar falls to 15% excluding Nvidia and Micron, and to 8% for the median stock. Median revenue growth is running at 7% for both the S&P 500 and the Stoxx 600.
Leading indicators point to more positive seasons
JPMorgan notes that global purchasing managers' indexes accelerated during the quarter to multi-year highs. The bank's own lead indicator for earnings is still rising and typically runs about two quarters ahead, which the strategists say suggests at least the next two reporting seasons should be positive.
AI continues to carry much of the load in the US, they say. Still, the share of global stocks with accelerating earnings is close to a record, which should improve the odds of a durable upcycle.
Europe's derating and the bond-yield test
In Europe, consensus is for 19% growth, easing to 11% once energy is stripped out. Banks have derated by more than 10% in recent weeks but should still report reassuring earnings. Derating means their valuation multiples have fallen.
JPMorgan says the recent spike in yields is nearing oversold territory, and if they peak as the reporting season begins, equities could climb into year-end with risk-on internals.
Source: investingLive
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