JPMorgan Chase & Co.'s trading desk has adopted a "tactically cautious" stance on US equities, stepping back from its previous bullish outlook. This shift comes ahead of the Federal Reserve's September 16 policy meeting, driven by hawkish comments from Fed Chairman Kevin Warsh that have increased expectations for interest rate hikes this year.
Andrew Tyler, JPMorgan's head of US market intelligence, noted that while underlying economic fundamentals and corporate earnings remain robust, short-term pressures are likely to keep stock indexes range-bound rather than extending recent gains. He cited three immediate pressures: ambiguity surrounding the rate path, typical seasonal market softness, and a potential reversal in momentum for high-flying artificial intelligence stocks.
Warsh's remarks, delivered on Friday, indicated that inflation is not slowing meaningfully, prompting traders to increase their bets on tighter monetary policy. The 10-year Treasury yield climbed past 4.75% on Monday, a level not seen since January 2025. Derivative markets now suggest a nearly 70% probability of a quarter-point rate increase next month. US equities experienced a slip, with the S&P 500 falling approximately 0.5% at midday, though it remains on pace for about a 2.5% gain for August.
Tyler highlighted that September is historically the weakest month for US stocks. He also noted that if the Fed does raise borrowing costs, investors will face heightened uncertainty regarding the magnitude and duration of the tightening cycle, as Chairman Warsh has been less explicit than prior leaders. The upcoming August payrolls report on Friday and the September 11 consumer price report are seen as critical indicators for the Fed's next move.
Despite the near-term caution, Tyler emphasized that the broader backdrop remains constructive, supported by economic data and corporate earnings. He reassured investors that a recession is highly unlikely in the next few quarters, stating that "Equity bull markets tend to end with either a hiking cycle or a recession." JPMorgan's desk anticipates choppy, sideways trading in the interim.
