JPMorgan Report: Four Reasons to Remain Bullish on U.S. Equities; September CPI to Determine Rate Hike

Written by: Rita

Interest rates are rising, exchange rates are shifting, and oil prices are climbing—yet J.P. Morgan still advises staying bullish on U.S. equities. On September 6, J.P. Morgan released its Asia-Pacific market thematic report, presenting four key reasons to remain optimistic despite recent macroeconomic volatility affecting U.S. investors: strong growth, interest rates that are not excessively high, a tendency toward a weaker dollar, and hedge funds holding neutral-to-light positions. The August non-farm payrolls added 162,000 jobs, significantly exceeding expectations, but the real uncertainty regarding a September rate hike hinges on the September 11 CPI release.

J.P. Morgan believes that, despite rising macro volatility, the attractiveness of equity assets has not diminished. Global PMI-implied growth exceeds 3%, EPS is in an upward revision cycle, the MSCI World Index has risen approximately 12% year-to-date, and the 10-year U.S. Treasury yield has increased by only 60 basis points. Profit growth is absorbing valuations rather than being driven by bubbles. The report also highlights potential risks from the German election and a shift in European trade policy, but for U.S. equity investors, the core focus remains on growth resilience, interest rate trajectories, and portfolio positioning.

Growth is the first pillar supporting a bullish outlook on U.S. equities. The U.S. growth rate reached 2.5% in the first half of 2026, and JPMorgan expects even stronger growth in the second half (2.6%), with upside risks. The global PMI in August suggests growth exceeding 3%, across multiple industries and regions.

Even with oil prices nearing $100 creating pressure and rising interest rates raising concerns, growth remains the key variable for equity assets. Non-farm payrolls in August added 162,000 jobs, exceeding market consensus by over 100,000, with GDP and EPS forecasts both on an upward revision path. The strong employment data further confirms the resilience of economic fundamentals, indicating that the labor market has not experienced the significant cooling that markets previously feared.

From a profitability perspective, the median S&P 500 company reported a 14% year-over-year increase in EPS for the second quarter, and profit growth across sectors excluding AI infrastructure companies also reached a new peak in this cycle. J.P. Morgan believes that the earnings recovery is broadening, providing the strongest fundamental support for U.S. equities. Earnings growth, not valuation bubbles, is the true driver of stock price increases.

The pace of yield increases is more important than the absolute level. The primary driver of recent long-term rate hikes has been strong growth, not runaway inflation or fiscal deterioration. JPMorgan’s rates strategists expect the pace of the 10-year U.S. Treasury yield increase to slow, with a year-end target of 4.85%.

A regression analysis shows that the current 10-year U.S. Treasury yield is broadly in line with underlying growth levels. Despite widespread market discussion about a 6% deficit ratio and $40 trillion in federal debt, this rise in yields is fundamentally driven by growth—a positive signal for U.S. equities rather than a warning. When yield increases are fueled by growth, corporate pricing power and profit prospects improve simultaneously, enhancing the attractiveness of equity assets.

JPMorgan believes that interest rates have not yet reached the critical point where they would impose a cyclical drag on the economy. Although higher interest rates have increased financing costs, the improvement in corporate earnings has been sufficient to offset this impact. The key threshold lies in the pace of rate increases, which remains within manageable levels.

JPMorgan believes that, although the Trump administration officially maintains a "strong dollar" policy, its actual policy orientation is to lower interest rates and weaken the dollar to improve U.S. competitiveness.

A weaker dollar supports U.S. tech stocks and multinational companies' overseas revenues. A weaker dollar means that U.S. tech giants—whose海外收入 accounts for approximately 50% to 60% of total revenue—will benefit from foreign exchange gains when converting their overseas profits back into U.S. dollars, directly boosting their earnings per share in USD.

Hedge fund positions remain overall neutral to slightly light, providing a clean starting point for future position building. After two to three months of deleveraging, J.P. Morgan’s U.S. Tactical Positioning Monitor remains at a relatively low level of 40% (0.2 standard deviations below average), while global hedge fund net exposure stands at only 40% to 50% on a five-year horizon.

At the sector level, the allocation to cyclical stocks relative to defensive stocks remains neutral. Over the past week, some initial signs of position building have emerged, but these are only evident at the gross position level, with net positions yet to follow. This positioning structure suggests that there is still substantial buying power waiting to be unleashed, and significant potential for capital to flow back into equities once macroeconomic uncertainties subside.

Historical data shows that when hedge fund net exposure is in the 40% to 50% range, equity asset returns over the subsequent 6 to 12 months tend to be positive. The current positioning level is neither crowded nor extreme, providing technical support for further upside in U.S. equities.

In August, non-farm payroll employment increased by 162,000, far exceeding expectations, raising the probability of a September rate hike and pressuring U.S. stocks (S&P 500 fell 0.5%). J.P. Morgan believes Warsh has clearly indicated that the dual mandate presents no conflict, as unemployment is already low; the decisive factor for a September rate hike will be the CPI data on September 11. J.P. Morgan expects core CPI to rise 0.21% month-over-month; if this expectation is met, the probability of a rate hike will decline.

The market's pricing of a September rate hike has risen from around 30% before the NFP to slightly above 50%. If the CPI data shows moderate inflation, expectations for a rate hike could quickly cool, creating a rebound window for U.S. equities. Conversely, if CPI exceeds expectations, a September rate hike may become likely, exerting short-term pressure on growth stock valuations.

JPMorgan recommends maintaining overweight positions in U.S. equities, AI technology, and gold. Investment in AI infrastructure remains a cross-cycle theme, with capital expenditures by hyperscale providers projected to increase by 60% by 2027; although growth will slow in 2028, absolute spending levels will remain high.

September features a busy schedule of key meetings: the FOMC (16th) is expected to hold rates steady, the ECB (10th) is anticipated to hike by 25 basis points, the Bank of England (17th) is expected to hold rates steady, and the Bank of Japan (18th) is projected to hike by 25 basis points. The CPI data (11th) will provide short-term directional guidance.

Two risk factors warrant attention: if CPI rises more than expected, a September rate hike could pressure valuations of growth stocks. Escalation of European trade protection policies may impact overseas revenues of certain U.S. companies with export-oriented businesses, particularly in the automotive and industrial sectors. J.P. Morgan believes the current risk-reward profile of U.S. equities remains favorable.

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (J.P. Morgan, September 6, 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.