Stocks can rally now that the cloudy skies hanging over the market are clearing, JPMorgan says

• There's greater "clarity" on tax reform, earnings and the French election, Dubravko Lakos-Bujas, head of U.S. equity strategy and global quant research at JPMorgan Securities, said in a Wednesday note.
• As a result, the S&P 500 could likely top his year-end price target of 2,400.
• Hedge funds have recently sold stocks, and a better environment for markets also sets up for more buyers to come in and send stocks higher, the note said.

Supporters of French presidential election candidate for the En Marche ! movement celebrate after the results of the first round of the presidential election, on April 23, 2017 at the Parc des Expositions in Paris.

Eric Feferberg | AFP | Getty Images

JPMorgan analysts see U.S. stocks rallying now that there's greater "clarity" on tax reform, earnings and the French election.

"We believe the risk/reward for equities has improved," Dubravko Lakos-Bujas, head of U.S. equity strategy and global quant research at JPMorgan Securities, said in a Wednesday note.

Lakos-Bujas expects the S&P 500 could likely top his year-end price target of 2,400. That is less than 10 points above Tuesday's close and near the average 2,407 forecast of CNBC's Market Strategist Survey in March.

Last Wednesday, President Donald Trump laid out some details on his highly anticipated tax proposal. U.S. corporate earnings are showing the best year-on-year growth since the third period of 2011. Now risks from the French presidential election this Sunday also appear to have fallen, given centrist candidate Emmanuel Macron's large lead in polls over far-right candidate Marine Le Pen.

Global growth also looks better, likely leading to more alignment in central bank policies that keeps the U.S. dollar weaker and helping company earnings worldwide, Lakos-Bujas said.

Uncertainty has kept stocks in a trading range since March 1, the last time the S&P 500 hit a record. Hedge funds also lowered their exposure to stocks from near-record levels, Lakos-Bujas noted.

That drop in investor positioning sets up for more buyers to come in and send stocks higher.

"We believe a positive outcome for Trump's growth agenda is underpriced by the market currently," Lakos-Bujas said.

"Even if the tax reform pivots to a much less ambitious plan than the GOP/Trump proposals, we still would see potentially meaningful upside for earnings and equity values," he said.

That said, investors still have a few things to worry about.

The two French candidates are set to debate later on Wednesday, and if Le Pen wins the presidency on Sunday she will likely threaten the future of the European Union.

The Federal Open Market Committee is also scheduled to conclude its meeting Wednesday afternoon, and could surprise markets by signalling a faster pace of tightening this year.

Friday's monthly employment report might also add to concerns about the U.S. economy given recent softness in some data points.