Global Earnings Resilience May Support Equities Despite Stagflation Fears: JP Morgan

The report pushes back against the widely held bearish narrative, noting that fears of a stagflationary environment are marked by slowing growth and tighter liquidity. may be overstated. It said, "The bearish equity market views revolve around stagflation narrative... We continue to disagree with both," highlighting a divergence between market sentiment and underlying fundamentals.

A key pillar of this constructive outlook is the continued upward revision in earnings projections. The report emphasised that "aggregate earnings projections for 2026 are continuing to move up... not just in the US, but in most places," suggesting that earnings momentum remains broad-based across regions and sectors. While the Energy sector has seen strong upgrades driven by elevated oil prices, gains are not confined to it alone, with several other sectors also witnessing positive revisions.

The outlook for oil prices remains a critical variable. JP Morgan noted that Brent crude averaging around USD 100 per barrel would still be compatible with further earnings upside, unless geopolitical tensions escalate significantly and trigger widespread downgrades.In Europe, headline earnings growth projections for 2026 may appear elevated at around 18 per cent, but the report clarified that this is largely due to base effects in the Consumer Discretionary segment. A more realistic median estimate of around 8 per cent leaves room for potential upside surprises, especially if economic activity remains stable.

The report also highlighted that the ongoing Q1 earnings season is likely to reassure investors. Strong activity trends during the quarter are expected to translate into better-than-anticipated results in many markets. However, companies may adopt cautious guidance due to persistent geopolitical risks, even as investors look beyond near-term uncertainty.

At the sector level, performance is expected to remain uneven. Semiconductors, mining and industrials are likely to deliver robust results, while consumer discretionary may remain under pressure in the near term. "We still think Semis, Mining and Industrials results will look positive. Consumer Discretionary is likely to be under pressure, but better numbers could be coming in 2H, China dataflow is looking stronger," the report noted.

Energy is expected to outperform current projections, while banks could show resilience and recover part of their recent underperformance.

The report also pointed to evolving sector rotation trends since the pandemic, with cyclicals likely to lead the next phase. Consumer cyclicals could emerge as the final leg of this rotation, particularly if geopolitical tensions ease and policy support for consumption increases ahead of key political events in the US.

JP Morgan underscored that recent market corrections have created opportunities. It noted that markets had entered oversold territory following the sell-off in March, and that investors who turned bearish may need to rebuild positions, lending further momentum to a rebound.

- ANI