The stock market sell-off is almost over and resilient earnings and slowing inflation means a rally is on the way, JPMorgan says

• The most recent sell-off in stocks is almost over, according to JPMorgan.
• The bank said as inflation expectations moderate, risk assets like stocks should will slow their descent.
• "We see potential for a strong rally whenever the macro picture turns less negative," JPMorgan said.

The current sell-off in stocks is likely nearing its end and a rally could be imminent, as corporate earnings remain resilient and inflation expectations moderate, according to JPMorgan's Marko Kolanovic writing in a note to clients on Monday.

The bullish note comes less than a week after a hot August Consumer Price Index report sent stocks tumbling in the worst sell-off in two year, and led investors to start pricing in higher odds of another outsized rate hike this week.

And Kolanovic expects the same, telling clients that after the Fed's expected 75 basis point rate hike tomorrow, another 100 basis points in rate hikes could be on the table by year-end. But that doesn't mean stock prices can't buck their current downtrend and rally from here, according to the note.

Kolanovic's steadfast bullishness towards stocks is derived from the fact that corporate earnings results have held up better than expected year-to-date, and are likely to continue to do so into year-end. Additionally, low investor positioning and moderation in long-term inflation expectations should help boost stock prices.

"Robust earnings, low investor positioning and well anchored long-term inflation expectations should mitigate any downside in risk assets from here," Kolanovic said, adding that there are signs analyst earnings revisions may be bottoming.

Indeed, earnings revisions have fallen considerably already. At the end of June, Wall Street analysts expected third-quarter S&P 500 earnings to grow 9.8%. Today, that growth estimate stands at just 3.5%. But given the ongoing headwinds of inflation, Russia's war against Ukraine, and mid-term election uncertainty, any positive earnings growth will likely be cheered by investors.

And with investor sentiment so low, any cadence of better-than-expected news could have a sharp effect on stock prices as most prepare for the worst, according to Kolanovic.

"We believe credit risk will remain contained in the US even if growth slows further, and see potential for a strong rally whenever the macro picture turns less negative," Kolanovic said.