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

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.

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 years and caused investors to start pricing in higher odds of another rate hike this week.

By the end of the year, another 100 basis points in rate hikes could be on the table. That doesn't mean stock prices can't rally from here.

Corporate earnings results have held up better than expected so far this year and are likely to continue to do so into the end of the year. Low investor positioning and moderation in inflation expectations should boost stock prices.

"Robust earnings, low investor positioning and well anchored long-term inflation expectations should mitigate any downside in risk assets from here."

Earnings revisions have fallen significantly. The third-quarter earnings of the S&P 500 were expected to grow. The growth estimate is just 3.5% today. Positive earnings growth will likely be cheered by investors due to inflation, Russia's war against Ukraine, and mid-term election uncertainty.

With investor sentiment so low, any better-than- expected news could have a big effect on stock prices.

"We believe credit risk will remain contained in the US even if growth slows further, and we believe there is a potential for a strong rally whenever the macro picture turns less negative," he stated.