JPMorgan equity strategists, led by Mislav Matejka, are maintaining a positive outlook for equities, projecting an attractive growth-inflation dynamic in 2026. They anticipate strong earnings and economic activity alongside stable bond yields, well-managed inflation, and a dovish stance from the Federal Reserve. While acknowledging the potential for market corrections due to stretched technical indicators or adverse geopolitical events such as escalating tensions with Iran or new tariffs, they believe these episodes will be short-lived and represent buying opportunities, provided the overall macroeconomic environment remains favourable.
According to Matejka, recent fourth-quarter results have prompted upward revisions in earnings estimates, with strong economic momentum observed across most regions, evidenced by rising Purchasing Managers’ Index (PMIs) and export orders. Despite concerns over rising commodity prices and significant capital expenditure in sectors like artificial intelligence, defence, and infrastructure, there are currently no clear signs of overheating or increasing inflationary pressures. In fact, inflation rates are showing signs of easing.
The strategists are sticking to their view that inflation will remain well-behaved, supported by factors such as slowing wage growth, reduced services inflation, and stable Brent crude oil prices, barring any temporary geopolitical escalations. Long bond yields have declined in recent weeks as anticipated, and the pricing of Federal Reserve funds futures indicates expectations for easing monetary policy, despite recent strong economic data, reinforcing their ‘Goldilocks’ scenario.
However, a significant challenge for US equities lies with the performance of megacap technology stocks. Despite robust earnings and increased capital expenditure, the ‘Magnificent Seven’ group has underperformed the broader market, particularly compared to AI-related stocks in other regions. The forward price-to-earnings ratio of the ‘Magnificent Seven’ has fallen to its lowest level in a decade, raising concerns about their evolving business models. If these stocks fail to regain their leadership position, the broader US equity market may struggle to advance.
