JPMorgan Says Equities Can Withstand Higher Yields as Earnings Momentum Supports Valuations

JPMorgan strategists said the current equity selloff reflects markets digesting short-term oil price and interest rate shocks, not repricing a collapse in corporate earnings. The bank expects volatility to persist through September 2026 on seasonal weakness and geopolitical tensions, before fundamentals regain dominance in October. Corporate profit margins across the U.S., Europe and Japan remain healthy and above long-term averages, with second-quarter margins hitting record highs. Historical data show margin peaks lead recessions by an average of eight to nine quarters, and most companies are expected to post strong or record profitability in 2026. The share of global companies forecast to deliver positive EPS growth in 2026 has risen above 80%, with earnings improvement broadening beyond the technology sector. Balance sheets remain resilient, with net debt-to-equity ratios 20% to 40% below historical averages and average debt maturity of five to six years, reducing exposure to near-term rate increases. Five-year forward inflation swaps have held steady despite rising oil prices, indicating inflation expectations have not become unanchored as in 2022.