JPMorgan believes the Q2 earnings season is likely to confirm the resilience of corporate profits and continue supporting the stock market
AI summary card
JPMorgan believes the Q2 earnings season is likely to confirm the resilience of corporate profits and continue supporting the stock market
The report maintains a constructive view on the 2026 equity market, arguing that earnings upgrades, Eurozone improvement, and broadening into cyclical sectors can offset geopolitical disruptions.
- 2026 EPS expectations are still being revised upward, and not only driven by IT and energy; most industries in MSCI AC World have seen net upgrades since the start of the year.
- Consensus expects Q2 EPS year-on-year growth of about 22% in the US and 12% in the Eurozone, but the median growth rate is around 8%-9%, which the report views as more achievable.
- Eurozone EPS revisions have recently turned clearly positive, with the gap versus the US nearing its first full closure since early 2025.
- Bank earnings are expected to be relatively reassuring, while semiconductors may have rebound opportunities after a divergence between prices and earnings momentum; energy earnings remain highly dependent on oil-price volatility, so the underweight stance is maintained.
- Market leadership is broadening from highly concentrated AI/mega-cap tech trades to a wider set of sectors, which may bring volatility, but under an improving earnings cycle it is unlikely to evolve into a sustained decline.
Report interpretation
Overview
This is a JPMorgan global equity strategy report focused on a preview of Q2 2026 earnings. The report argues that despite rising geopolitical uncertainty in Q2, global corporate earnings expectations continue to move higher, while macro activity indicators also support further earnings improvement in 2H. The authors view strong earnings as a key pillar of their bullish 2026 equity-market outlook and recommend using pullbacks caused by geopolitical news such as the Iran conflict to add equity exposure.
Core views
The core views are as follows: first, headline Q2 earnings expectations appear high, but median EPS growth is more moderate and achievable; second, Eurozone earnings revisions have improved meaningfully and may support relative performance in Europe; third, there is still room for earnings recovery in cyclical sectors, and the broadening of market leadership may continue; fourth, the setup for the earnings season is favorable for banks and semiconductors, while energy is more vulnerable as the oil-price cushion disappears; fifth, short-term results in consumer sectors may diverge, but the market may look ahead to an inflection point in 2H.
Analysis framework
The report combines indicators such as consensus EPS revisions, Q2 earnings growth expectations, OECD leading indicators, economic surprise indices, jobless claims, oil prices, exchange rates, loan growth, and relative earnings and price performance across sectors to assess the earnings cycle top-down, and then maps that view into regional, sector, and style allocation.
Methodology notes
Use changes in consensus EPS, market-cap-weighted growth, and median growth to judge whether earnings expectations are too high.
The report argues that Q2 market-cap-weighted EPS growth in the US and Eurozone appears high, but median EPS growth is around 8%-9%, indicating that the high growth is mainly driven by a small number of large-cap IT and energy companies rather than broadly aggressive assumptions across the whole market.
Use macro leading indicators and data surprises to assess the future direction of corporate earnings.
The report notes that rising OECD leading indicators, a positive Eurozone CESI, and resilient US initial jobless claims are all consistent with further earnings improvement in 2H.
Compare the EPS revision gap between cyclical and defensive sectors to judge whether market leadership is broadening.
The report believes that earnings revisions for cyclical sectors relative to defensive sectors have turned positive, and together with improving PMI and IFO expectations, this supports continued earnings recovery for cyclicals.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Global equitiesOverall bullish
- Strengths
- Upward earnings revisions, improving macro activity, margin resilience, and broadening market leadership.
- Weaknesses
- Geopolitical disruptions, oil-price volatility, and the possibility that earnings beats may be smaller than in Q1.
- Comparison
- Compared with market concerns at the start of the year that consensus expectations were too high, actual EPS expectations have continued to move higher.
- Risks
- Further escalation of the Iran conflict, a resurgence of inflation, or renewed Fed rate hikes.
- Eurozone equitiesMarginal improvement
- Strengths
- EPS revisions have turned positive, loan growth is improving, and fiscal stimulus, FX support for exporters, and lower energy costs provide support.
- Weaknesses
- Over the past three years, European earnings have consistently disappointed expectations, so the improvement still needs to be confirmed by actual results.
- Comparison
- The gap versus US EPS revisions is nearing its first full closure since early 2025.
- Risks
- Geopolitical conflict weighing on energy and manufacturing, and exporter exposure to euro moves or changes in external demand.
- BanksPositive
- Strengths
- Net interest income is more resilient than expected, loan demand is recovering, and investment-banking and wealth-management fee income is improving.
- Weaknesses
- Still affected by the rate path and the credit cycle.
- Comparison
- The report believes Q2 bank results may come in slightly above consensus and provide reassuring guidance.
- Risks
- Rate cuts compressing NIM, weaker loan demand, or deteriorating asset quality.
- SemiconductorsTactically positive
- Strengths
- Earnings revisions continue to move higher, memory prices remain firm, and AI demand stays resilient.
- Weaknesses
- Recent price performance has been dragged down by profit-taking and geopolitical pressure.
- Comparison
- A gap has opened between relative price performance and earnings momentum, and strong Q2 results could serve as a catalyst for repair.
- Risks
- A slowdown in AI capex, export restrictions, or changing expectations for supply expansion.
- EnergyUnderweight
- Strengths
- Q2 earnings will be supported by higher oil prices and base effects.
- Weaknesses
- Relative earnings performance has realigned with oil prices, leaving little margin of safety.
- Comparison
- Energy stocks traded at a discount to oil prices in 2025, providing a cushion, but the report believes that gap has largely disappeared.
- Risks
- Falling oil prices, fading conflict-driven oil-price spikes, and structural supply pressure over the next 12 months.
- Consumer CyclicalsCautiously turning positive
- Strengths
- Consumer confidence is at contrarian lows, tariff pressure is easing, oil prices are down sequentially, and the hiking cycle is near its peak.
- Weaknesses
- Q2 earnings may be mixed, with Autos and some Retail segments still under pressure.
- Comparison
- Hotels, Airlines, and Luxury appear relatively more attractive.
- Risks
- Continued weak consumer confidence, pressure on real incomes, and weaker-than-expected demand for travel and discretionary consumption.
- Emerging Markets equitiesMaintain Overweight
- Strengths
- The report believes the EM memory trade still has room to continue, with significant supply increases not expected before early 2028.
- Weaknesses
- The index has already reached new highs and may face short-term profit-taking.
- Comparison
- The report says investor positioning is lighter than before the conflict, and valuations are lower on a P/E basis.
- Risks
- A stronger US dollar, geopolitical escalation, or a decline in global risk appetite.
Key data
- Change in S&P 500 2026 EPS expectations since the start of the yearabout +7%The report says that US earnings expectations have continued to move higher even as geopolitical uncertainty increased in Q2.
- Change in Europe 2026 EPS expectations since the start of the yearabout +2.5%European earnings expectations are also rising, indicating that the improvement is not limited to the US.
- Breadth of EPS revisions across MSCI Europe level-1 sectorsabout 70% of sectors have seen net positive revisions since the start of the yearThe report emphasizes that the breadth of earnings upgrades is stronger than market intuition suggests.
- Consensus Q2 US EPS year-on-year growthabout 22%The report believes the headline figure looks high, but it should be understood together with the median and sector composition.
- Consensus Q2 Eurozone EPS year-on-year growthabout 12%Eurozone earnings revisions have recently turned positive, and the report expects strong double-digit EPS growth to be achievable this year.
- Expected median Q2 EPS growthabout 8%-9%The report sees this level as more realistic and broadly consistent with the macro backdrop.
- Expected revenue growth in the US and Europeabout 7% in the US, about 5% in EuropeImprovement on the revenue side and operating leverage are seen as supporting margin resilience.
- S&P 500 Q2 EPS forecast$81.7Above the roughly $75 realized in Q1.
- Historical average EPS beat magnitude for S&P 500 companiesabout 5%-6%The report expects the earnings environment to remain supportive, but the beat magnitude may be below the exceptionally strong Q1 performance.
- Performance of the S&P 500 equal-weight index relative to the market-cap-weighted indexabout 5% outperformance since the May lowUsed to support the view of broadening market leadership.
Impact & implications
If the report’s view proves correct, the Q2 earnings season will reinforce earnings support for the equity market, especially benefiting Europe, cyclicals, the value factor, equal-weight trades, banks, and semiconductors. The market may experience episodic volatility caused by leadership rotation, but as long as the earnings backdrop remains resilient, the report believes the risk of sustained selling is limited. By contrast, energy, chemicals, and parts of staples face higher risks of earnings downgrades or conservative guidance.
Risks
- Continued escalation of the Iran conflict, disrupting oil supply or triggering a broader regional conflict.
- A resurgence of inflation that forces the Fed to raise rates rather than keep them unchanged.
- Q2 earnings beats falling below the historical average, or management turning more conservative in guidance for 2H.
- Oil-price volatility causing energy earnings revisions to move lower and weighing on related market sentiment.
- Failure of European earnings improvement to materialize, with Eurozone EPS revisions weakening again.
- A market leadership rotation triggering sharper volatility, with equal-weight and cyclical trades failing to continue.
What to watch
- Actual Q2 EPS growth, beat rates, and Q3 guidance in the US and Europe.
- Whether Eurozone EPS revisions can remain positive and continue narrowing the gap with the US.
- Whether OECD leading indicators, US initial jobless claims, Eurozone CESI, and loan growth continue to improve.
- Bank net interest income guidance, loan demand, and fee-income trends.
- Semiconductor order momentum, memory prices, AI demand, and commentary on 2027 capacity plans.
- Whether the relationship between relative earnings in the energy sector and Brent oil prices again develops a margin of safety.
- Whether Luxury, Airlines, and Hotels, Restaurants and Leisure in the consumer sector show a 2H inflection point.
- Whether the S&P 500 equal-weight index, cyclical stocks, and the value factor continue to outperform.