JPMorgan’s team of quantitative strategists reiterated their optimistic stance on stocks, pointing to loose financial conditions, a rebound in foreign investment in U.S. markets, and valuation models suggesting current levels are broadly aligned with fundamentals.
In a Wednesday note, strategists led by Nikolaos Panigirtzoglou highlighted that while macro hedge funds remain wary, equity long/short managers “appear to have rebuilt their equity exposures from April already, thus benefiting from the past months’ V-shaped recovery.”
They noted that futures positioning and equity beta levels show macro managers’ caution is concentrated in higher short interest on the SPY ETF compared to the Invesco QQQ Trust.
“We continue to view the gap between the short interest of SPY and QQQ ETFs as a bullish equity market signal,” the team wrote.
The report emphasized that credit conditions are easing across the U.S. and Europe. Both Federal Reserve and ECB surveys showed a reversal from previous tightening, with banks lowering lending standards. Lending activity has picked up: U.S. banks grew loans at an annualized pace of just over 6% in Q2, while euro area banks posted 3.3% growth in the first half of the year.
JPMorgan noted that a pullback in corporate bond issuance has been “more than offset by the increased pace of loan creation,” further strengthening the outlook.
On the demand side, overseas investors have stepped up U.S. equity purchases. Net inflows reached $163 billion in June, rising from $116 billion in May. Sovereign wealth funds and public pension funds accounted for $47 billion, while hedge funds added around $39 billion.
Retail-driven ETF flows, however, have stalled. Since February 2025, inflows into U.S. equity ETFs have “largely flatlined,” leaving most of the buying to institutional and foreign players.
In Europe, equity flows picked up in June after months of stagnation, though they no longer surpass those of the U.S., reflecting what strategists described as the “flatlining of the Europe minus U.S. equity ETF impulse.”
On valuation, JPMorgan’s models suggest the fair value of the S&P 500 sits around 5,560, with the index currently trading roughly 15% above that level. Looking further ahead, the framework projects fair value to rise by about 15% by late 2026, implying that markets have already priced in much of the expected earnings growth.
“For the S&P 500, our long-term fair value framework suggests a year-end 2026 projection that is close to the current price,” the strategists said.
As for bonds, JPMorgan estimates 10-year real U.S. Treasury yields at just above 1.7%, slightly undervalued by 10–20 basis points. With the bank forecasting four consecutive 25-basis-point rate cuts from the Fed, real yields could come under 35 basis points of downward pressure over the next year, though term premia may cushion part of that move.
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