JPMorgan strategists said global equities could absorb the recent increase in bond yields, pointing to corporate profit margins, balance-sheet leverage and broader earnings growth as factors supporting their assessment.
The rise in Brent crude above $100 over the past two weeks has coincided with higher bond yields, including the U.S. 10-year Treasury yield approaching 5%.
Strategists led by Mislav Matejka said the resulting decline in equities has so far been “limited,” with the S&P 500 around 2% below its August highs and the Stoxx 600 down approximately 3% to 4%, both from record closing levels.
The team described the moves as “a market digesting an oil and rates shock, rather than repricing a collapse in earnings.”
JPMorgan said near-term volatility could continue amid historical September seasonality and uncertainty surrounding geopolitical developments. However, the strategists expect markets to move into closer alignment with underlying fundamentals during October.
That represents JPMorgan’s market outlook rather than a prediction of future equity performance.
Profit Margins Remain Above Long-Term Averages
JPMorgan said corporate profit margins are “generally very healthy” and remain above long-term averages in the U.S., Europe and Japan.
According to the bank, most companies across the three regions are on course for a strong or record year for profitability in 2026.
The strategists noted that profit margins have historically peaked ahead of economic downturns, with an average lead time of around eight to nine quarters. The latest observed margins, covering the second quarter, reached new highs, according to JPMorgan.
The bank also pointed to a broader distribution of earnings growth outside the technology sector.
JPMorgan said the global proportion of companies expected to report positive earnings-per-share growth in 2026 has increased to more than 80%.
In Europe, the bank said profit margins remain above long-term averages despite weakness in the automotive industry weighing on the consumer discretionary sector.
Corporate Leverage Remains Below Historical Averages
JPMorgan also cited corporate balance sheets as a factor that could reduce the immediate impact of higher interest rates.
According to the bank, net debt-to-equity ratios are generally between 20% and 40% below historical averages, while the average duration of corporate debt is around five to six years.
Longer debt maturities can delay the effect of higher market interest rates on companies’ borrowing costs because existing debt does not need to be refinanced immediately.
JPMorgan’s credit team also expects the market to absorb upcoming corporate debt issuance, including borrowing by companies associated with artificial intelligence investment.
Inflation Expectations Remain Stable Despite Oil Move
JPMorgan said another difference from 2022 is that longer-term inflation expectations have remained relatively stable despite the recent increase in oil prices.
The bank pointed to five-year, five-year forward inflation swaps, which it said have remained steady.
According to the strategists, this reduces the risk that the recent increase in interest rates will accelerate further and indicates that markets are currently treating the oil-price increase as temporary.
They described this as “typically a better backdrop for equities to look through near-term volatility.”
JPMorgan’s assessment is based on current market conditions, corporate financial data and historical relationships. Changes in oil prices, bond yields, inflation expectations, earnings or geopolitical conditions could alter the outlook.