J.P. Morgan and Morgan Stanley see dip-buying opportunity amid Middle East tensions

Wall Street brokerages J.P. Morgan and Morgan Stanley said the recent bout of market weakness tied to Middle East tensions may offer opportunities for long-term investors, citing resilient corporate earnings and improving valuations as key buffers against further downside.

Hopes of de-escalation helped lift the S&P 500 nearly 8% from a seven-month low reached in March, after concerns that a potential closure of the Strait of Hormuz could trigger an oil price shock, fueling inflation and deepening economic uncertainty. Despite the rebound, the index edged only slightly higher on Monday as weekend talks between the US and Iran did not produce a breakthrough.

Geopolitical shocks seen as temporary

Strategists at J.P. Morgan said the market reaction to geopolitical developments may not be long-lasting. In a note led by strategist Mislav Matejka, the firm said its base case remains that any further escalation is unlikely to be sustained indefinitely and that dips driven by geopolitical shocks should ultimately be buying opportunities.

The S&P 500 has fallen as much as 8% since the US-Israel war against Iran began, narrowly avoiding the 10% threshold that defines a correction. While volatility has increased, analysts argued the market has not entered a prolonged downturn phase.

They also pointed to relative performance across regions. The S&P 500 has outperformed Europe’s STOXX 600, which declined more than 11%, and the MSCI Emerging Markets Index, which has entered correction territory.

Earnings strength underpins outlook

According to Morgan Stanley strategists led by Michael Wilson, the recent selloff appears more consistent with a correction than the start of a sustained bear market. The firm attributed the market’s resilience to solid earnings growth and more attractive valuations.

Earnings expectations have continued to rise despite the geopolitical backdrop. Data from LSEG I/B/E/S showed the estimated earnings growth rate for the S&P 500 at 13.9% for the first quarter of 2026 as of April 10, up from 12.7% before the conflict began.

Goldman Sachs previously echoed a similar view, warning about near-term correction risks while saying the scope for a deeper bear market appeared limited.

Morgan Stanley said it continues to favor cyclical sectors including financials, industrials, and consumer discretionary, as well as quality growth names such as AI hyperscalers, noting that earnings momentum remains intact.

Valuations adjust as leadership shifts

J.P. Morgan also highlighted a shift in market leadership dynamics, noting that the valuation premium for the “Magnificent Seven” stocks has narrowed significantly. The group’s forward price-to-earnings ratio has declined to 1.2 times that of the S&P 500, down from 1.7 times previously.

The firm said this compression could indicate a broader rebalancing within equities, as investors rotate toward sectors with more attractive pricing and cyclical exposure.

While maintaining a constructive view on equities, Morgan Stanley downgraded global equities in late March, reflecting caution around near-term risks. J.P. Morgan, meanwhile, reiterated its preference for international equities over US markets in its latest note.