A television broadcasts Jerome Powell, chairman of the U.S. Federal Reserve, announcing an increase in the Federal Reserve interest rate on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 19, 2018.

The first three months of next year will likely see stocks rally, J.P. Morgan says, so long as the Federal Reserve "skips" its March meeting and does not hike interest rates again.

"Signs of capitulation by institutional investors are creating a window of opportunity for equity markets into Q1 assuming the Fed reacts to market stress," J.P. Morgan analyst Nikolaos Panigirtzoglou said in a note to investors on Friday.

Last week the central bank raised rates for a fourth time in 2018.

Stocks initially rose after the December meeting, as the Fed lowered its forecast of rate hikes next year to two from three. But equities fell sharply during Fed Chairman Jerome Powell's post-meeting news conference. Powell was not as "dovish," or leaning against more rate hikes, as some investors may have wanted, but Panigirtzoglou thinks whether the Fed gets even more dovish next year will be the key factor in determining whether stocks get a boost in the beginning of 2019.

"If such dovish shift does not materialize and the yield curve inversion fails to improve, any equity rally in Q1 would most likely be short lived," Panigirtzoglou said.

J.P. Morgan also sees an "important headwind" for stocks as "now significantly reduced," Panigirtzoglou said. The firm said "non-bank investors" around the world, also known as "real money investors," are no longer bullish on stocks. The S&P 500 briefly entered a bear market on Christmas Eve, a move which Wall Street defines as a 20 percent decline or more from recent highs.

"The equity market declines over the past few months have erased real money investors' previous equity overweights, reducing the need by these investors to actively sell equities from here," Panigirtzoglou said.