JPMorgan Chase & Co.'s trading desk has shifted from a bullish to a "tactically cautious" stance on US equities for the near term. This change in outlook comes ahead of the Federal Reserve's September 16 policy meeting and follows hawkish remarks by Fed Chairman Kevin Warsh. Andrew Tyler, JPMorgan's head of US market intelligence, indicated that while fundamental economic conditions and corporate earnings remain strong, short-term pressures will likely lead to sideways market movement.
Tyler cited several factors contributing to this cautious view: uncertainty regarding the future path of interest rates, typical seasonal market weakness, and a potential reversal in momentum for high-flying artificial intelligence stocks. Warsh's recent speech at Jackson Hole emphasized that inflation is not slowing meaningfully, prompting traders to increase bets on tighter monetary policy. Derivatives markets now suggest nearly a 70% probability of a quarter-point rate hike next month, and the CME FedWatch Tool indicates a 65.9% chance of a 25 basis point hike in September.
The market reacted to this shift with the 10-year Treasury yield climbing past 4.75% on Monday, a level not seen since January 2025. US equities experienced declines, with the S&P 500 falling approximately 0.5% at midday. Rate-sensitive utilities led the losses, though strength in the energy sector helped cushion broader declines. Despite these near-term concerns, overall equity positioning is mostly neutral, and the S&P 500 is still on track for a roughly 2.5% gain in August, while the Dow is set to achieve its fifth consecutive monthly gain.
Investors are now awaiting key economic reports, with Friday's employment data and the September 11 consumer-price report being particularly critical. Tyler noted that September historically has been the weakest month for US stocks. He also highlighted that while a recession is highly unlikely in the next few quarters, Warsh's comments have made the upcoming Fed meeting a "live meeting." JPMorgan's desk anticipates choppy, sideways trading despite supportive underlying fundamentals.
