JPMorgan’s Grace Peters is optimistic about US and European stocks and expects more upside to share market sentiment in the near term and long-term but does not see a period of sustained turbulence.
Peters, Co-Head of Global Investment Strategy at JPMorgan Private Bank, has been largely positive about equities, despite macroeconomic and geopolitical challenges. And her latest assessment suggests that a potential 5% to 8% correction should not be taken as the start of a bear market or structural breakdown.
Instead, such a decline might be a normal and potentially healthy development after a good period of equity-market performance.
5%-8% Correction Could Be Healthy
As the market approaches major risk events including the November US midterm elections, Peters said investors may see a correction of about 5% to 8% through major risk events.
Corrections are an integral part of equity-market cycles. Investors often seek to lock in profits, reassess valuations, and lower risk in advance of big economic or political events after big gains.
A decline in the 5%-8% range would be relatively modest compared with the losses that a long bear market usually results in. Peters’ view is that such a pullback would be a healthy correction rather than a structural breakdown.
The distinction is important to investors because a short-term decline due to positioning, uncertainty or profit-taking is totally different from a sustained market downturn driven by recession, collapsing corporate earnings or severe financial stress.
US Stocks Still Have Room to Rise
Peters’ optimistic view comes as valuations, inflation, interest rates and geopolitical issues are still of growing concern.
The US stock market is still showing resilience and has been supported by strong corporate earnings and good investment demand in sectors such as artificial intelligence and technology. Recent market forecasts have also been positive; a Reuters poll of strategists forecasting the S&P 500 will finish 2026 modestly above current levels.
But higher Treasury yields remain a big concern. The 10-year Treasury yield is currently 4.8% and there are concerns that we are heading toward 5% and equity valuations will be impacted further.
Higher yields can make bonds more attractive compared to stocks while increasing the discount rate applied to future corporate earnings.
European Equities Also Offer Potential
Peters is also positive on European stocks, which have benefited from improving earnings expectations, investment in defense and infrastructure, and a valuation discount relative to US equities.
But European markets have their own problems. Higher energy prices, inflation concerns and political uncertainty might lead to periods of turbulence. Recent market estimates are, however, still moderately optimistic regarding European stocks and the STOXX 600 is expected to be on course for a further rise by year-end.
This presents a nice balance for investors: European stocks may have a somewhat higher valuation but the US markets also enjoy stronger earnings growth and technology-driven momentum.
Why Investors Should Expect Volatility
The possibility of a correction is particularly relevant as markets approach several major risk events.
The US midterm elections in November could create uncertainty about fiscal policy, regulation, taxation and government spending. Investors will be watching central-bank decisions, inflation data, bond yields, corporate earnings and geopolitical developments as well.
The current environment is already showing signs of increased volatility. JPMorgan's trading desk recently took a less aggressive short-term stance to account for interest-rate uncertainty, seasonal weakness and market positioning.
But tactical caution does not necessarily mean that the broader equity bull case has ended.
Correction Does Not Mean Market Breakdown
What Peters’ outlook should be taken as a lesson to long-term investors is that market corrections and long-term bullish trends are possible together.
A 5%-8% decline could create opportunities for investors if corporate earnings remain healthy and the underlying economic environment remains supportive. On the other hand, a correction with poor earnings, high unemployment and financial stress would be a different matter.
Peters is in a balanced position: supportive of US and European stocks, while recognizing that markets are unlikely to go up in a straight line.
With the November midterm elections coming up and bond yields, inflation and geopolitical risks still very much in play, we expect turbulence. But Peters argues a moderate correction of this sort may ultimately be a healthy reset and not the start of a deep market decline.
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