Summary: JPMorgan told investors in a note on Tuesday that it "fundamentally believes that the current backdrop is different to 2022" and that central banks are unlikely to hike as aggressively as markets are pricing. The bank used that assessment to argue in favor of adding low-volatility stocks, which it views as an attractive entry point after recent weakness.
In a research note authored by equity strategist Mislav Matejka, JPMorgan kept a broadly constructive outlook for markets. The firm reiterated its expectation that the earnings trajectory will remain robust and said stagflation is not the most likely scenario for the second half of the year.
JPMorgan noted that since mid-March it has consistently recommended buying market dips that were triggered by adverse geopolitical headlines, likening the pattern to last year’s Liberation Day V-shaped recovery. That tactical advice sits alongside the bank’s wider macro assessment that the current environment differs meaningfully from the one investors faced in 2022.
Under the surface, however, the bank highlighted a notable divergence within equity markets. Low-volatility stocks - typically drawn from staples, healthcare, utilities and insurance - have lagged in both the U.S. and Europe in recent months. JPMorgan said this underperformance has tracked closely with the rise in bond yields. The bank cited several large, defensive names by way of example, including Procter & Gamble, Coca-Cola, Johnson & Johnson, Roche and Nestle.
Framing that weakness as an opportunity, JPMorgan argued the low-volatility trade "is worth considering now" and emphasized that the case for adding these stocks "is not conditional on the overall market moving lower." The bank suggested the group could perform well under a range of macro outcomes: it could outperform if yields spike and broader equities struggle, or it could rally if the recent rise in yields proves to be only a temporary scare.
Looking further ahead, JPMorgan stated that on a six- to twelve-month horizon it expects bond yields and oil prices to be "likely to be lower from here on a 6- to 12-month horizon, perhaps meaningfully so." That medium-term view underpins the firm’s broader constructive stance.
Implications for sectors: JPMorgan’s note points to potential renewed interest in consumer staples and healthcare, as well as defensive sectors such as utilities and insurance, given their representation in low-volatility baskets and the bank’s view that these names may offer resilient returns across varying yield scenarios.
Key points
- JPMorgan believes the current market backdrop is fundamentally different from 2022 and expects central banks to be less aggressive than markets are pricing.
- The bank maintains a constructive market stance, citing a strong earnings outlook and a low probability of stagflation in H2.
- Low-volatility stocks have lagged recently as yields rose, creating what JPMorgan describes as a potential buying opportunity in defensive sectors such as staples, healthcare, utilities and insurance.
Risks and uncertainties
- Policy risk: If central banks do tighten policy more aggressively than JPMorgan anticipates, the bank’s constructive baseline could be challenged - a development that would particularly affect rate-sensitive sectors.
- Yield volatility: Continued or further increases in bond yields could prolong underperformance among low-volatility names, notably in consumer staples and healthcare.
JPMorgan’s view, as presented in Matejka’s note, frames recent defensive-stock weakness as an entry point rather than a signal of structural damage. The firm’s recommended stance rests on its dual assumptions that earnings remain strong and that both yields and oil prices are likely to trend lower over the next six to twelve months.