Written by: Rita

Brent crude oil broke through 100 USD, closing at 107.6 USD on September 10, coupled with rising bond yields, leading to a decline in global stock markets. JPMorgan stated in its stock strategy report published on September 14, 2026, that this round of stock market pullback provides an opportunity to increase stock positions, and the trend has not reversed. The bank believes that third-quarter earnings will calm the market starting in October.

JPMorgan analyst Mislav Matejka raised a critical question in the report: should one join the sell-off? The bank's answer is no. The short-term direction of oil prices will determine risk preference, but fluctuations should not be extrapolated for too long. Over the past two years, the narrative of "upgrading to downgrading" has been effective multiple times, with a shift to bearish sentiment due to rising oil prices, which may be contradicted in the following easing messages.

Oil Price Shock Brings Accumulation Opportunities

Brent crude broke through 100 USD last week, becoming the last straw that broke the resilience of the stock market. Previously, the stock market had remained strong, benefiting from improved economic activity and upward earnings revisions. JPMorgan believes that the current situation aligns with the template of "upgrading to downgrading," and in the 3 to 6 month timeframe, selling off during a decline driven by oil prices is not cost-effective.

Seasonal factors are currently weak, and investors are anxious about inflation and bond yields. These could trigger more weakness in the coming weeks. JPMorgan points out that one should not overly extrapolate fluctuations, as seasonal weaknesses will fade as the calendar turns, and the next earnings season will provide new anchor points.

The momentum of earnings revisions is strengthening in key areas, with more upward than downward revisions, and the breadth continues to expand. JPMorgan notes that such positive revision momentum rarely occurs in the early stages of sustained market declines. The second quarter Eurozone manufacturing PMI improved, and the U.S. ISM manufacturing index was also stronger, providing a solid foundation for third-quarter earnings.

Stock-Bond Positive Correlation Not Yet Reversed

This year, the stock market has absorbed the rise in bond yields well. The MSCI World Index (MXWO) is up 11% year-to-date, while bond yields have risen by 65 basis points during the same period. JPMorgan believes that this round of rising yields is driven by economic activity and corporate earnings upgrades, with real interest rates rising, and long-term inflation expectations not increasing.

The 5y-5y inflation forward has not reacted to the recent rise in oil prices, deviating from historical relationships. The term premium is at a 10-year high, and most of the normalization has already occurred. Wage growth continues to decline, and the latest non-farm payroll report shows strong overall data, while hourly wage growth is at the slowest pace in 5 years. Nominal GDP growth averages between 5% and 6%, and bond yields at or below this level should not be viewed as headwinds.

JPMorgan has consistently viewed that there is a risk of a reversal in stock-bond correlation when the 10-year U.S. Treasury yield is around 5% to 5.5%. Current yields are around 4.83%, still away from that range. As long as the driving factors behind rising yields remain unchanged and the absolute levels do not become excessively high, there will not be an issue in the coming months. Credit growth in the U.S. and Europe continues to be strong, directly demonstrating that current yield levels have not stifled the economy.

Cyclical Stocks and Value Stocks in Favor

The rise in yields is generally favorable for cyclical stocks, especially when growth prospects are not challenged. Over the past few months, sector leadership has been far from a risk-averse mode. Cyclical stocks have risen, low volatility has returned to year-to-date lows, consistent with rising PMI and earnings. JPMorgan points out that if the market truly turns risk-averse, we should see opposite signals.

European cyclical stocks are closely correlated with defensive stocks and the PMI cycle, with both strengthening in sync. The earnings momentum of cyclical stocks is better than that of defensive stocks. Value stocks should also perform well, especially as the earnings potential of growth styles may have peaked relative to value. The forward earnings advantage of growth relative to value is narrowing, making the premium enjoyed by growth harder to maintain.

Overweight Stocks and Emerging Markets

JPMorgan maintains an overweight in stocks, a neutral stance on bonds, and an underweight in cash. In terms of regional allocation, it is overweight in emerging markets and the Eurozone, and underweight in developed markets, neutral on the U.S., neutral on Japan, and neutral on the U.K. Emerging markets are undervalued, and the flow of funds may restart, with a weaker dollar providing support, and headwinds in China's trade easing.

In terms of sector allocation, JPMorgan is overweight in materials, industrials, and discretionary consumer, underweight in energy, staple consumer, healthcare, and financials. The materials sector benefits from cyclical recovery and earnings revisions. The industrial sector benefits from upward earnings revisions in capital goods and transportation. Discretionary consumer spending benefits from improvements in automotive and durable goods earnings.

On the risk side, a further surge in oil prices will pressure the stock market, and geopolitical escalations may exacerbate volatility. JPMorgan believes that a rate hike by the Federal Reserve this week may be better than not hiking, as it helps build credibility. As long as the rate hike is moderate, earnings growth remains strong, and inflation is not unhinged, the stock market should be able to withstand it. JPMorgan suggests using oil price-driven stock market weakness to accumulate stocks, as volatility will give way to better trades with the third-quarter earnings.

Disclaimer

This document is a summary and interpretation of third-party brokerage research reports (JPMorgan, September 14, 2026), combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited in this document are the views of the brokerage analysts and solely represent the stance of their respective institutions, not the views of this research, and do not constitute any investment advice.

The market has risks, and decisions should be made independently. This document should not be used as the basis for buying or selling any securities.