The call argues for broadening rather than narrowing equity exposure, with near-record numbers of stocks seeing accelerating earnings suggesting leadership need not rest on a handful of AI names. For Europe, recent derating in banks and French equities sets a lower bar into results, leaving room for relief rallies if earnings simply hold up. The bond market is the swing factor: a peak in yields as reporting gets under way would remove the main headwind to valuations, while a further leg higher would test the thesis. Companies flagging rising energy costs also tie the earnings outlook back to crude, so any renewed oil spike is a direct risk to European margins.
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Earlier:
US stocks close mixed
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JPMorgan reckons the headline earnings bar looks scarier than it is, and that once results start rolling in, September’s jitters should give way to fundamentals that still hold up.
Summary:
JPMorgan strategists led by Mislav Matejka expect third-quarter earnings to support markets, with strength broadening beyond AI despite investor concern after weeks of volatility
S&P 500 consensus sees Q3 EPS growth of 24% on IBES data (30% on FactSet and LSEG after a Meta tax adjustment), falling to 15% excluding Nvidia and Micron and 8% for the median stock
European consensus is 19%, dropping to 11% excluding energy, with a median of 9%; median revenue growth is 7% on both sides of the Atlantic
Global PMIs hit multi-year highs in the quarter, and JPMorgan’s lead indicator points to at least two more positive reporting seasons
European margins are seen around 14% of sales this year, 250 basis points above 2019, with energy likely to beat while miners, China and consumer exposure lag
JPMorgan stays positive on European semiconductors, banks, chemicals and industrials, and sees a peak in bond yields opening the way for equity gains into year-end
Third-quarter earnings should reassure investors and act as a support for equities, according to JPMorgan strategists, who say profit strength is broadening beyond artificial intelligence even as many investors fear results will disappoint after weeks of market volatility.
The team, led by Mislav Matejka, said investors already hold a constructive view on earnings, but argued that results will still underpin the market. Expectations look elevated at face value, the strategists said, yet appear more reasonable on closer inspection. Consensus for S&P 500 earnings per share growth in the quarter stands at 24% on IBES data. FactSet and LSEG put the figure at 30% because of an adjustment for a one-off tax charge at Meta. Excluding Nvidia and Micron, the growth hurdle falls to 15%, and for the median stock it drops to 8%.
In Europe, consensus is for 19% growth, easing to 11% once energy is stripped out, with a median of 9%. Median revenue growth is running at 7% for both the S&P 500 and the Stoxx 600.
JPMorgan pointed to global purchasing managers’ indexes, which accelerated during the quarter to multi-year highs and are consistent with strong earnings. The bank’s own lead indicator for earnings is still rising and typically runs about two quarters ahead, which the strategists said suggests at least the next two reporting seasons should be positive. AI continues to carry much of the load in the US, they said, but the share of global stocks with accelerating earnings is close to a record, which should improve the odds of a durable upcycle.
In Europe, margin expansion is doing most of the work, with operating margins projected at around 14% of sales this year, some 250 basis points above 2019 levels. Every sector is improving except staples, autos and software. A weaker euro should help exporters, and energy is likely to surprise to the upside. Miners are a risk, China and consumer exposure may remain soft, and companies are likely to flag rising energy costs.
The strategists also expect strong results from semiconductors and industrials. Banks have derated, meaning their valuation multiples have fallen, by more than 10% in recent weeks but should still report reassuring earnings. French equities have derated by more than 15% even as profits hold up, though the CAC 40 earns three quarters of its revenue outside France.
Looking ahead, JPMorgan said the recent spike in bond yields is nearing oversold territory. If yields peak as the reporting season begins, equities could climb into year-end with risk-on internals, the strategists said. The bank remains positive on European semiconductors, banks, chemicals and industrials, and expects market focus to shift from September’s volatility toward fundamentals that remain supportive.
This article was written by Eamonn Sheridan at investinglive.com.
