J.P.Morgan, Morgan Stanley see dip-buying chance as earnings hold up

Wall Street brokerages J.P. Morgan and Morgan Stanley say the recent bout of market weakness driven by Middle East tensions may present an opportunity for long-term investors, pointing to resilient corporate earnings and improving valuations as key buffers against further downside.

Hopes of de-escalation in the conflict had helped lift the S&P 500 nearly 8% from a seven-month low hit in March, after concerns that a potential closure of the Strait of Hormuz could trigger an oil price shock, fueling inflation and deepening economic uncertainty.

Despite the rebound, the index edged only slightly higher on Monday as weekend talks between the US and Iran failed to yield a breakthrough.

Geopolitical shocks seen as temporary

Strategists at J.P. Morgan maintained that the market reaction to geopolitical developments may not be long-lasting.

"Our base case remains that any further escalation is unlikely to be sustained ⁠indefinitely, and that dips driven by geopolitical shocks should ultimately prove to be buying opportunities," J.P.Morgan said in a note led by strategist Mislav Matejka.

The benchmark index has fallen as much as 8% since the US-Israel war against Iran began, narrowly avoiding the 10% threshold that defines a correction. While volatility has increased, analysts argue that the market has not entered a prolonged downturn phase.

Comparatively, US equities have demonstrated relative resilience. The S&P 500 has outperformed Europe’s STOXX 600, which declined more than 11%, as well as the MSCI Emerging Markets Index, which has entered correction territory.

Earnings strength underpins outlook

According to Morgan Stanley strategists led by Michael Wilson, the recent selloff appears more consistent with a correction than the beginning of a sustained bear market. They attribute the market’s resilience to solid earnings growth and more attractive valuations.

Earnings expectations have continued to rise despite the geopolitical backdrop. Data from LSEG I/B/E/S shows that the estimated earnings growth rate for the S&P 500 stands at 13.9% for the first quarter of 2026 as of April 10, up from 12.7% before the conflict began.

Goldman Sachs echoed a similar view earlier, cautioning about near-term correction risks while noting limited scope for a deeper bear market.

Morgan Stanley said it continues to favor cyclical sectors such as financials, industrials, and consumer discretionary, along with quality growth names including AI hyperscalers, as earnings momentum remains intact.

Valuations adjust as leadership shifts

J.P. Morgan also highlighted a shift in market leadership dynamics, noting that the valuation premium for the so-called “Magnificent Seven” stocks has narrowed significantly.

The group’s forward price-to-earnings ratio has declined to 1.2 times that of the S&P 500, down from 1.7 times previously.

This compression in valuations could signal a broader rebalancing within equity markets, as investors rotate into sectors with more attractive pricing and cyclical exposure.

Despite maintaining a constructive view on equities, Morgan Stanley downgraded global equities in late March, reflecting caution around near-term risks. Meanwhile, J.P. Morgan reiterated its preference for international equities over US markets in its latest note.