J.P.Morgan, Morgan Stanley urge buying the dip as US earnings stay resilient

• S&P 500 earnings growth estimates for Q1 2026 increased to 13.9% as of April 10, up from 12.7% before the conflict began, demonstrating corporate resilience despite geopolitical tensions
• U.S. stocks outperformed during the selloff, with the S&P 500 down 8% compared to Europe's STOXX 600 falling over 11% and emerging markets entering correction territory
• The 'Magnificent Seven' valuation premium narrowed significantly, with their forward P/E ratio falling to 1.2x the S&P 500 from 1.7x, while strategists favor cyclical sectors and AI hyperscalers

Summary: J.P. Morgan and Morgan Stanley Recommend Buying Market Dip Amid Resilient Earnings

Key Investment Thesis:

Leading Wall Street firms J.P. Morgan and Morgan Stanley are advising investors to buy the recent market dip, citing resilient corporate earnings and attractive valuations despite ongoing Middle East geopolitical tensions.

Market Performance:

The S&P 500 has recovered nearly 8% from its seven-month low hit in March, though it remains down as much as 8% since the U.S.-Israel-Iran conflict erupted. The index stopped short of correction territory (defined as a 10% decline). U.S. stocks outperformed European markets (STOXX 600 down over 11%) and emerging markets, which did enter correction territory.

Earnings Growth:

Despite geopolitical uncertainty, S&P 500 earnings expectations have strengthened. First-quarter 2026 earnings growth estimates stand at 13.9% as of April 10, up from 12.7% before the conflict began, according to LSEG I/B/E/S data.

Strategic Recommendations:

• Morgan Stanley (Michael Wilson): Favors cyclical sectors including financials, industrials, and consumer discretionary, plus quality growth stocks like AI hyperscalers
• J.P. Morgan (Mislav Matejka): Notes the "Magnificent Seven" valuation premium has narrowed significantly, with their forward P/E ratio falling to 1.2x the S&P 500 from 1.7x; maintains preference for international equities over U.S. stocks

Market Catalyst:

Both firms expect geopolitical tensions to be temporary, with J.P. Morgan stating escalation is "unlikely to be sustained indefinitely." Weekend U.S.-Iran talks failed to produce a ceasefire deal, though de-escalation hopes continue supporting markets. Goldman Sachs echoed similar views in early March regarding near-term correction risks.