JPMorgan backs equities in first half as earnings broaden

• Europe is JPMorgan's clearest conviction, with an overweight rating on Eurozone equities trading at record discounts to the US; the bank expects a 2026 earnings rebound after three consecutive years of declines
• The S&P 500 is considered expensive at 23 times forward earnings, though December's consolidation has improved risk-reward; broader market leadership will likely require more aggressive Fed dovishness
• JPMorgan upgraded emerging markets to overweight, citing supportive rate cuts, reduced dollar pressure, and increased China policy support, while favoring China technology and Korea within the asset class

Summary: JPMorgan Backs Equities in First Half 2026 as Earnings Broaden

Investment Outlook:

JPMorgan projects positive equity returns in H1 2026, supported by easing inflation, steady growth, and improving earnings. The December 2025 consolidation, which left the S&P 500 below pre-Fed rate cut levels, has created improved risk-reward dynamics for 2026.

Key Drivers:

• Inflation expected to decline due to subdued oil prices, softer wage growth, and potential tariff dilution
• Economic support from fiscal stimulus in Europe and stabilization in China
• Bond yields expected to remain stable, allowing central banks to maintain dovish policies

Regional Views:

US Equities: JPMorgan remains cautious, noting the S&P 500 trades at approximately 23x forward earnings—historically expensive. While long on US growth and large caps, the bank notes elevated investor positioning and mixed labor market signals. Broader market leadership requires more aggressive Fed dovishness.

Europe: Strongest conviction here. JPMorgan is overweight Eurozone equities, particularly the Euro Stoxx 50. After three consecutive years of profit declines through 2025, a 2026 rebound is expected via German fiscal stimulus and ECB rate cuts. Valuations trade near record discounts versus the US. France specifically highlighted for catch-up potential.

Emerging Markets: Overweight position as many central banks continue cutting rates, dollar pressure eases, and China policy support increases. Favors China technology, Korea, and Chinese domestic cyclicals.

Japan: Fundamentals remain solid with attractive earnings yields and record buybacks, but fuller valuations and rising risks warrant selectivity. Banks preferred.

UK: Neutral stance despite record valuation discounts and highest dividend yields—lacks clear near-term catalysts.

Sector Calls: Avoid energy; positive on basic resources and banks; healthcare screens cheap; defense, utilities, and insurance vulnerable to rotation.