JMP Report: Global Rate Hikes Resume, Stock Market Still Supported by Earnings

Written by: Rita

Markets are concerned that a renewed global tightening cycle could crush stock markets, but JPMorgan’s view is that earnings are the anchor. In its Global Market Strategy report released on September 18, 2026, JPMorgan noted that central banks in developed markets are shifting toward synchronized tightening. The Bank of Japan has once again tightened policy, joining the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Norges Bank in raising rates. The Riksbank and the Bank of England are expected to follow later this year, with the Bank of Canada remaining the only developed-market central bank holding steady.

JPMorgan analyst Fabio Bassi noted in his report that Fed Chair Warsh reaffirmed the commitment to price stability during the press conference without providing additional forward guidance. The median of the dot plot indicates one more rate hike this year, with rates holding steady in 2027; however, eight of the 18 committee members expect another hike next year. Rates are projected to be cut by 25 basis points in both 2028 and 2029. The neutral policy rate has been raised to 3.25%. JPMorgan expects the Fed to hike rates by 25 basis points in December, and if the macro baseline of resilient economic growth and persistent inflation holds, there is a risk of a third hike in early 2027.

The Fed’s actions reversed the “insurance cut” implemented at the end of 2025 in response to a weak labor market. J.P. Morgan believes the OIS forward market is fairly priced and has raised its target for the 2-year and 10-year U.S. Treasury yields to 4.70% and 5.05%, respectively. The Bank of England held rates steady this week, but policymakers emphasized that policy could tighten if the Middle East conflict persists. J.P. Morgan expects the Bank of England to hike by 25 basis points in November and again in February next year. The Bank of Japan raised rates by 25 basis points, with two dissenting votes. J.P. Morgan anticipates another 25-basis-point hike from the Bank of Japan in December. Regarding the European Central Bank, J.P. Morgan expects a rate hike in December and another in March 2027, while the market currently prices in approximately 70 basis points of tightening over the same period.

J.P. Morgan’s core assessment is that as long as the rate hiking cycle remains shallow, equities will be driven by earnings, with limited impact from interest rates. The bank’s base case is that the modest reversal of last year’s insurance-rate cuts can be absorbed by risk assets. The risk lies in whether the yield curve begins to price in a broader hiking cycle and whether long-term yields rise significantly.

Based on long-term historical patterns, there is an inverted U-shaped relationship between the 10-year yield and the S&P 500 price-to-earnings ratio, with the inflection point depending on the earnings growth backdrop. Forward consensus earnings per share growth remains above 20%, and the S&P 500 is trading at approximately 18 times 2027 EPS. If these growth forecasts materialize, history suggests that the P/E ratio can remain supported, allowing equities to withstand a 10-year yield approaching 6%.

J.P. Morgan notes that the direct fundamental impact of rising interest rates is gradual, as corporate debt is predominantly fixed-rate and long-term. Recent headwinds have been partially offset by improved profitability in financial stocks and higher returns on large cash balances. More relevant secondary channels include whether tighter financial conditions are marginally slowing the AI capital expenditure cycle, and whether rising rates are widening spending disparities among different income groups. This combination calls for a focus on balance sheet quality and margin resilience, rather than assuming a uniform interest rate shock.

J.P. Morgan analyzed the beta of S&P 500 sectors against the 1-year SOFR. Over the past month, Communication Services had a beta of +6% with an R² of 56%; Information Technology had a beta of +3% with an R² of 14%; and Energy had a beta of +7% with an R² of 52%. These three sectors outperformed the index during rising interest rates. Healthcare had a beta of -8% but outperformed due to its defensive characteristics. Industrials had a beta of -13% with an R² of 75%; Real Estate had a beta of -9% with an R² of 80%, making them the most interest-rate-sensitive underperformers. Small caps had a beta of -8% with an R² of 81%, underperforming the large-cap index by 3.4%. Large caps had a beta near zero, making them relatively insensitive to interest rate movements. J.P. Morgan reaffirmed its positive outlook on large caps, technology, and communication services.

Middle East tensions have pushed Brent crude oil prices to $100–110 per barrel, above the $75–100 per barrel range maintained since late May. J.P. Morgan believes that even under a scenario of “permanent” conflict in the Middle East, Brent is unlikely to sustainably trade above $100 per barrel. Supply shocks have been largely offset by pre-war surpluses, incremental supply, and inventories; the key equilibrium mechanism is demand destruction driven by higher refined product prices. J.P. Morgan’s commodities strategy team no longer has a clear baseline scenario for the resolution of Iran-related conflict; the U.S. economic pain threshold has been breached, but an exit strategy remains unclear. Brent prices are approximately $90 above the estimated fair value, indicating that the risk premium aligns with concerns over additional supply losses.

J.P. Morgan notes that China’s President is expected to visit Washington from September 23–25 for the year’s second summit with President Trump. Relations have shifted from tariff disputes to broader trade and technology conflicts, expanded sanctions, supply chain decoupling, and energy security tensions. The visit carries high symbolic weight but limited substantive thresholds. J.P. Morgan’s base case is a strategic compromise within a managed decoupling framework—not a comprehensive “grand deal.” Investors are increasingly wary of the summit expanding into transactional linkages, such as trading de-escalation in the Middle East and/or maritime security cooperation for narrower trade policy relaxations. If achieved, this could temporarily ease global cyclical pressures by lowering geopolitical risk premia and boosting confidence.

J.P. Morgan maintains a positive outlook on global equities, expecting large-cap, high-quality growth, and technology sectors to lead gains amid Fed rate hikes. Limited rate increases and a resilient macro cycle may support broader rallies. In bonds, J.P. Morgan views short-end U.S. and German yields as relatively cheap compared to central bank benchmarks, but market pricing still reflects the risk of additional hikes. In foreign exchange, Fed expectations repricing and Warsh’s hawkish comments have strengthened the dollar, and J.P. Morgan sees further upside potential for the dollar against developed market currencies. For emerging markets, J.P. Morgan is overweight on emerging market currencies and neutral on rates. In credit, credit remains the most resilient asset class to Fed rate hikes, with a preference for investment-grade over high-yield in Europe.

The global tightening cycle has reopened, but J.P. Morgan believes this cycle will be shallow. If inflation data remains persistently higher than expected, forcing the Fed to shift from a shallow tightening cycle to a broader one, can the earnings anchor of the stock market hold up?

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (J.P. Morgan, September 18, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.

The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.