JPMorgan on Monday advised investors to use any fresh market weakness as an opportunity to add exposure, contending that the ingredients for a V-shaped rebound remain intact even with geopolitical tensions still a factor.
Analyst Mislav Matejka said that although markets could endure further volatility if the Middle East conflict were to re-escalate, investors with a three-to-twelve month horizon should be increasing risk on pullbacks rather than retreating from the market.
"Military conflicts inherently display fat tails and drive elevated volatility, but we argued against succumbing to bearish views as the risk of getting whipsawed increases significantly," Matejka wrote.
JPMorgan noted that bearish sentiment had become widespread two to three weeks into the conflict, with market participants broadly expecting a further surge in oil prices and many having materially de-risked portfolios. The bank said that this combination, alongside oversold technical signals, constituted the cue to begin adding exposure - a stance it first articulated on March 23.
On the broader macro front, Matejka emphasized that the present environment is meaningfully different from 2022 across several dimensions, including inflation pressures, corporate pricing power, real rates and the labor market. Against that backdrop, he reiterated a call for long duration positions regardless of how the conflict evolves.
JPMorgan also pointed out that S&P 500 2026 earnings per share estimates have continued to move higher. The bank said central banks should look through an expected 1.5 percentage point rise in year-on-year inflation.
Regarding portfolio positioning, JPMorgan expects international stocks, emerging markets, small caps and value to resume outperforming, in line with its year-ahead outlook. "We think the relative performance should move to fresh highs in 2H," Matejka wrote, and added that emerging market inflows, which paused during the conflict, are likely to resume.
Implications for investors
- JPMorgan is advocating a pro-risk stance on dips for investors with a multi-month horizon.
- The bank highlights macro distinctions versus 2022 and favors long duration exposure.
- Positioning that favors international equities, emerging markets, small caps and value is expected to regain momentum later in the year.