Expectations about corporate earnings growth are quickly diminishing, JPMorgan Chase & Co. quant strategists said, warning that the gloom could spell more trouble for global stock markets after an underwhelming start to the year.

"Yes, there are still net upgrades, but the pace of these upgrades are very quickly nearing net EPS downgrade territory," quant strategists led by Khuram Chaudhry wrote in a note. Such earnings-per-share cuts "frequently lead to major shifts in risk/reward and increasing equity market volatility," he said.

Following a rout triggered by expectations that central banks will tighten policy more aggressively than previously anticipated to tame surging inflation, bulls have pointed to company fundamentals to back their case for more upside to global equities. Still, while earnings are still coming in above expectations, the pace of growth has moderated and guidance from company management has been turning more pessimistic.

"Upgrades persist in the U.S, Europe, and for the world," Chaudhry said. "However, the pace of these upgrades is quickly diminishing, and the earnings landscape is weakening," he added, as he singled out Japan as the region with the largest upgrades in earnings expectations.

JPMorgan's equity team has been among the most optimistic voices on Wall Street about the outlook for global stock markets. Bears, such as Bank of America Corp.'s Michael Hartnett, reiterated on Friday that the rising "rates shock" will morph into "recession shock," and advised a short position in equities.

Not everyone shares the gloom. The recent pullback in risk assets won't turn into a bear market that's reflective of a recession, Peter Oppenheimer, chief global equity strategist at Goldman Sachs Group Inc., said in an interview with Bloomberg TV. "We're still going to see economic activity continue through the course of this year."

Nikos Chrysoloras and Thyagaraju Adinarayan report for Bloomberg News.

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