Overview
Major Wall Street brokerages J.P.Morgan and Morgan Stanley told clients that the market weakness seen in recent weeks has created attractive opportunities for long-term investors. Both firms pointed to the resilience of corporate earnings as a buffer against the economic and market stress tied to the conflict in the Middle East.
Market moves and geopolitical context
Hopes for a de-escalation in the regional conflict have contributed to a near 8% rally in the S&P 500 from a seven-month low recorded in March. That low was driven by investor concern that a closure of the Strait of Hormuz could provoke an oil price shock, fueling inflation and wider economic uncertainty. The benchmark index advanced slightly on Monday even though weekend talks between the U.S. and Iran did not produce an agreement to end the war.
Brokerage assessments
In a note led by strategist Mislav Matejka, J.P.Morgan wrote: "Our base case remains that any further escalation is unlikely to be sustained indefinitely, and that dips driven by geopolitical shocks should ultimately prove to be buying opportunities."
The S&P 500 fell by as much as 8% since the U.S.-Israel war against Iran broke out, but it stopped short of a formal correction, which is defined as a 10% decline from record closing levels.
J.P.Morgan highlighted the relative safe-haven appeal of U.S. stocks during the recent volatility. The S&P 500 outperformed Europe’s STOXX 600, which dropped by over 11% at its weakest point, and outpaced MSCI’s index that tracks emerging market equities, which did reach correction territory.
Morgan Stanley strategists, led by Michael Wilson, characterized the recent selloff in the S&P 500 as more akin to a correction than the beginning of a sustained downturn. They attributed the market’s underlying support to improving earnings growth and healthier valuations.
Earnings outlook
Analysts' earnings expectations have risen even as the conflict continues. According to LSEG I/B/E/S data, the earnings growth rate estimate for the S&P 500 stood at 13.9% for the first quarter of 2026 as of April 10, compared with an estimate of 12.7% before the war began. This upward revision in earnings forecasts is a central element in both firms' bullish tactical posture toward current market dips.
Goldman Sachs had previously warned of near-term "correction risks" to global stocks but suggested there was limited scope for a full bear market.
Sector and valuation preferences
Morgan Stanley said it continues to favor cyclical sectors such as financials, industrials and consumer discretionary goods, while also supporting exposure to quality growth companies, including large-scale AI infrastructure providers referred to as hyperscalers.
J.P.Morgan noted a notable compression in the valuation premium enjoyed by the so-called "Magnificent Seven" group of stocks. The forward price-to-earnings ratio for that cohort has fallen to 1.2 times the S&P 500 from 1.7 times, narrowing a previously large gap.
Finally, Morgan Stanley had downgraded global equities late in March, and J.P.Morgan reiterated a preference for international equities over U.S. holdings in its most recent client note.
Key takeaways
- Major brokerages see recent market weakness as potential buying opportunities for long-term investors, citing resilient corporate earnings.
- Earnings growth estimates for the S&P 500 have been revised higher despite the ongoing conflict, with first-quarter 2026 growth projected at 13.9% as of April 10.
- Sector preferences include cyclical areas such as financials, industrials and consumer discretionary, alongside quality growth names like AI hyperscalers; valuation gaps between top growth names and the broader market have narrowed.
Risks and uncertainties
- Further escalation of the Middle East conflict could reverse recent market gains and revive fears of an oil price shock, affecting energy-sensitive sectors and inflation expectations.
- Equity benchmarks outside the United States have experienced larger drawdowns, with Europe’s STOXX 600 and emerging market indices showing deeper stress, signaling regional vulnerability.
- While earnings estimates have risen, revisions remain sensitive to ongoing geopolitical developments, which could alter the outlook for corporate profitability and market sentiment.