(Bloomberg) -- US stock market valuations look attractive given low bond yields and the presence of higher quality companies in the S&P 500, according to JPMorgan Chase & Co. strategists.

The US benchmark is on course for its biggest monthly gain since October, lifting the forward 12-month price-to-earnings ratio to 16.9 from a low of 15.3 reached in June. Still, that’s in line with the long-term median and “in our view is still cheap considering low bond yields,” strategists led by Dubravko Lakos-Bujas wrote in a note on July 28. 

JPMorgan strategists said the market multiple is “better than fairly valued” given the shift in industry mix to higher quality companies over the last two decades, which has made the S&P 500 less cyclical and shifted the index toward companies with more robust profits and balance sheets. 

The market’s rebound in July, following the biggest first-half slump for the S&P 500 since 1970, has been triggered by expectations that corporate earnings can stand up to surging inflation and slowing growth, and on optimism that much of the bad news has been priced in. 

As profits overall prove to be stable even as weaker guidance starts weighing on estimates, JPMorgan strategists don’t expect negative earnings growth for the full year in the absence of a deep US recession. 

Citigroup Inc. and UBS Global Wealth Management strategists also said earlier this week that the US corporate reporting season was turning out to be better than feared as consumer spending remains resilient. Still, earnings face a big test on Thursday when S&P 500 members with a combined market value of $6.8 trillion report results. Big Tech will be a particular focus with results from Amazon.com Inc., Apple Inc. and Intel Corp.

Stock investors have also been betting that the Federal Reserve may soon pivot away from tightening monetary policy as recession fears grow. The US central bank on Wednesday raised rates by 75 basis points, as expected, but signaled that the pace of hikes will slow at some point and policy will be set meeting-by-meeting.

“In sum, if economic growth and rates hold, we believe the S&P 500 is well supported at current levels,” the JPMorgan strategists said.

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