JPMorgan said Monday that recent market weakness and elevated volatility could open a window for buyers, arguing that conditions are forming for another rapid rebound even as Middle East tensions persist.
Short-term volatility, medium-term opportunity
Mislav Matejka, equity strategist at JPMorgan, said renewed geopolitical risks are likely to keep volatility elevated in the near term, but argued that traders with a three‑ to twelve‑month horizon could use pullbacks to add exposure.
He noted that major geopolitical shocks typically trigger wider price swings and sharp sentiment reversals, with markets often rebounding more quickly than headlines would suggest. Within two to three weeks of the latest conflict, he said, sentiment had turned broadly bearish as energy prices were expected to rise and risk exposure was cut across portfolios.
Previous call to buy the dip
JPMorgan first urged adding equity exposure on March 23, pointing to oversold technical conditions and widespread risk aversion. The bank said those factors have historically appeared near market lows and often precede a rebound in equities.
Matejka argued that the current backdrop is meaningfully different from 2022: inflation pressures are lower, real interest rates are stabilizing, and labor market data remain resilient. On that basis, he reiterated a preference for long duration exposure across assets, regardless of how the geopolitical situation develops.
Earnings outlook and central bank stance
The bank said projections for S&P 500 earnings per share in 2026 are still moving higher, reinforcing its constructive medium-term view on equities.
At the same time, JPMorgan expects central banks to look through what it estimates could be a 1.5‑percentage‑point year‑on‑year bump in inflation, driven in part by higher energy costs, rather than respond with tighter policy.
Regional and style preferences
In its latest outlook, JPMorgan said it expects:
- stronger relative performance from international equities
- renewed strength in emerging markets
- improved returns from small-cap shares
- better prospects for value-oriented segments
Matejka added that capital flows into emerging market assets, which paused earlier in the conflict, are likely to resume later in the second half of 2026.
Markets react sharply to headlines
The comments came after a sharp risk-off move in markets. The S&P 500 fell 2.1% yesterday, its largest single-day decline in six months. The CBOE Volatility Index (VIX), a widely watched gauge of expected market turbulence, jumped more than 28% to close at 21.4, its highest reading since October last year.
Matejka framed this sort of swift, fear-driven selloff as the kind of dislocation that can create value for traders willing to look beyond the next news cycle. He argued that immediate reactions to geopolitical headlines are often stronger than warranted by underlying macroeconomic data.
Macro data underpinning the call
Recent data from the Bureau of Labor Statistics showed the US unemployment rate holding at 3.6% last month, suggesting continued labor market strength and a backdrop that differs from past downturns.
Brent crude briefly traded above $95 per barrel amid the tensions, but Matejka said central banks are more likely to focus on the durability of economic strength than on a temporary inflation spike from higher energy prices.
What a rebound could look like
For holders of assets that are highly sensitive to market liquidity and sentiment, JPMorgan’s view implies that any rebound in major equity indices could be followed by an even stronger recovery in higher‑beta segments. These assets typically fall harder during periods of stress but can deliver outsized gains once conditions stabilize.
A key gauge to watch, according to the analysis, is whether the volatility index retreats from its recent highs. A sustained move back below 20 would indicate easing panic and could be seen as confirmation that the current period of dislocation is offering an entry point.
JPMorgan’s tilt toward small caps and value names indicates it expects any recovery to broaden beyond a narrow group of large-cap leaders, reflecting confidence in a wider economic upturn rather than a purely defensive rally.
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