Playing Catch-Up
The current disconnect between rising corporate earnings and stagnant stock prices points to underlying market tensions, as detailed in the recent commentary from J.P. Morgan. Per the full note, while 86% of S&P 500 companies exceeded earnings expectations in the second quarter, valuations are not reflecting this success, suggesting that external factors such as rising bond yields and oil prices may be capping stock performance. Additionally, the commentary hints at potential pressure on the dollar from shifting global trade dynamics, particularly with China increasing its use of the yuan for transactions. Overall, this dynamic could imply a moment of reflection for institutional traders as the market confronts both earnings potential and valuation headwinds.
What the desk is arguing
The desk underscores a key contradiction: strong earnings growth is not translating into stock price appreciation. As noted in the J.P. Morgan commentary, the S&P 500's strong earnings season contrasts sharply with a lack of upward momentum in equity valuations, which raises questions about market sentiment and future performance.
The underlying data supports this view, with the S&P 500 seeing 86% of its companies beating earnings per share (EPS) expectations. Concurrently, rising bond yields and volatile oil prices are suggested as potential factors capping valuations, indicating that traders need to be vigilant of these external pressures.
Where it sits in our coverage
Our consensus target for the EUR/USD is 1.075, with a range between 1.04 and 1.12. Notably, jpmorgan has a higher target of 1.10 for March 2026, while bofa is more conservative with a target of 1.04 for the same tenor.
The desk's current assessment aligns closely with the broader market outlook, sitting slightly above the consensus target and supporting the notion that there may be room for upward adjustments in the future if corporate earnings continue to perform strongly.
How other firms see it
Firms such as jpmorgan and gs are generally in alignment with this optimistic perspective on corporate earnings, while bofa presents a more cautious stance that underscores potential vulnerabilities in the market. The divergence highlights a split in sentiment regarding future earnings and valuation interplay.
Traders should monitor the EUR/USD closely, especially in the context of central bank policy shifts that may impact these dynamics, as well as key economic indicators that could signal shifts in market sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Strong earnings growth is not currently influencing stock valuations positively.
- 02External factors like rising bond yields and volatile oil prices could be capping market performance.
- 03Chinese shifts towards the yuan for trade settlements present potential risks to USD dominance.
- 04The institutional landscape shows divided views, with some firms anticipating further stock price corrections.
Market implications
Traders should look closely at the EUR/USD trajectory, especially in relation to global economic shifts and central bank policy adjustments. A movement beyond 1.075 may indicate a more substantial shift in sentiment, while resistance around 1.04 could imply ongoing reluctance to accept higher valuations given current external pressures.
Risks to this view
The outlook may be invalidated by sudden shifts in macroeconomic indicators or large-scale geopolitical events that could alter the fundamentals driving stock and currency valuations. Additionally, if bond yields continue to rise dramatically, this could put further downward pressure on equity market performance.
Why are stocks lagging behind strong corporate earnings? ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ View online Insights In Context * U.S. earnings are accelerating -- so why are valuations moving in the opposite direction ? * Top dollar no more? Discover the factors threatening the dominance of the world's reserve currency. * How is AI's expansion into real-world applications reshaping the funding landscape in Asia Pacific? Not a subscriber?
Sign up for In Context. PRIVATE BANKING US earnings are exceptional, but stocks are playing catch-up Corporate profits are on a tear, but stocks haven't fully reflected this success. From bond yields to oil prices, what are the forces capping valuations?
WHAT'S GOING ON? BY THE NUMBERS The S&P 500 recorded an exceptional second quarter earnings season, with 86% of companies beating earnings per share (EPS) expectations . China is moving away from dollar-based transactions.
Around 28% of its goods trade was settled in yuan in 2025, up from around 12% in 2018. Global AI-related capex is projected to approach $870 billion by the end of 2026, marking a 77% increase year over year. RESEARCH Are fears of de-dollarization overblown?
Overall, the evidence for a structural shift away from the dollar remains limited. While the U.S.'s share of global trade has declined over the past three decades, the greenback's transactional dominance is still evident in FX volumes, trade invoicing, international payments and international debt issuance. STILL TOP DOLLAR?
GLOBAL CORPORATE BANKING VC firms in Asia Pacific are funding the physical future of AI While there is still significant value to be captured at the application layer, funding is rotating out of pure software and into where AI meets the real world -- think robotics, automation and edge computing. EXPLORE IMPLICATIONS jpmorgan.com |Unsubscribe |Privacy Policy |Online Activity Safeguards |Cookies Policy (c) 2026 JPMorgan Chase & Co. All rights reserved.
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