Hawkish Statement from Waller Shakes Markets, JPMorgan Temporarily Abandons Bullish Stance on US Stocks, Turns Cautious in the Coming Weeks

According to Zhitong Finance APP, JPMorgan's (JPM.US) trading team has temporarily abandoned its previous bullish stance on U.S. stocks, adopting a more cautious attitude toward market trends in the coming weeks. After Federal Reserve Chairman Powell delivered a hawkish speech last week, the market has significantly increased its bets on further interest rate hikes this year, making uncertainty around the interest rate outlook one of the main short-term pressures facing U.S. equities.

However, JPMorgan emphasized that this does not mean the bank has turned bearish on U.S. stocks. The bank believes that U.S. economic data and corporate earnings still provide support, and market fundamentals remain strong. However, before the Fed announces its next interest rate decision on September 16, several short-term uncertainties may cause increased volatility in U.S. equities.

The trading team, led by Andrew Tyler, Head of U.S. Market Intelligence at JPMorgan, stated that ahead of the Fed's September 16 policy meeting, due to significant uncertainty regarding the future interest rate path, the team decided to temporarily abandon its previous bullish view.

In a report to clients on Monday, Tyler said that U.S. stock market fundamentals remain robust, but a series of short-term factors in the coming weeks may keep the market in a sideways range. As a result, the team is choosing to remain cautious for now.

The biggest change comes from Fed policy expectations. Last Friday, at the much-anticipated Jackson Hole global central bankers’ annual meeting, Powell said that U.S. inflation has not shown substantial easing and reiterated that the Fed will push inflation back to its 2% target.

This statement quickly strengthened market expectations of renewed rate hikes by the Fed. Tyler noted that if the Fed indeed begins raising rates again, it is currently difficult for investors to judge how long this round of policy tightening will last and how much cumulative rate hikes will occur. At the same time, compared with his predecessors, Powell is less willing to preemptively reveal the future rate path to the market, further increasing the difficulty for investors in predicting policy direction.

With escalating tensions in the Middle East driving oil prices higher, concerns about U.S. inflation have intensified, and U.S. Treasury yields continued to rise on Monday. The 10-year Treasury yield broke 4.75%, reaching this level for the first time since January 2025. Meanwhile, the interest rate swaps market shows investors now see nearly a 70% probability of a 25 basis point Fed rate hike at the September meeting.

Rising interest rates create new pressure for the U.S. equity market. On one hand, higher Treasury yields increase corporate financing costs; on the other, rising risk-free rates reduce the relative attractiveness of high-valuation stocks, meaning growth stocks and rate-sensitive sectors like utilities are typically more impacted.

It's worth noting that Tyler previously made accurate calls on short-term risks in U.S. equities. In early June, he turned cautious on the market, after which U.S. stocks experienced several weeks of declines.

This time, turning cautious again, Tyler points out three main short-term risks: significant uncertainty around the interest rate outlook, September’s typically weak seasonal performance for U.S. stocks, and the risk of a momentum reversal in previously surging AI concept stocks.

However, Tyler also notes that investors’ overall net positioning in the stock market remains largely neutral, with no sign of extreme crowding.

As the market enters September, U.S. equities will also face seasonal pressures. Historically, September is typically one of the weakest months in terms of annual returns for U.S. stocks. This year is even more complex, as investors need to judge both whether the Fed will resume rate hikes and whether the key driver of recent U.S. equity gains—the AI investment boom—can be sustained.

Previously surging AI concept stocks may face pressure from profit taking and withdrawal of momentum funds. If, during this period, Treasury yields continue to rise, valuation pressures on high-valuation tech stocks may increase further.

A modest correction has already taken place in U.S. stocks on Monday. The more interest-rate sensitive utilities sector led the declines, while, with the U.S. and Iran launching attacks on each other after about a month, international oil prices rose and energy stocks performed strongly against the prevailing trend.

At the close, the S&P 500 Index fell 0.33%. However, since August, the index is still up about 2.5% cumulatively, on track for its best August performance since 2021.

Before the Federal Reserve’s September 16 policy meeting, two closely watched pieces of U.S. economic data will also be released. First is the August nonfarm payroll report, scheduled for release this Friday. Economists expect that after an unexpected drop in job numbers in July, U.S. nonfarm payrolls in August could increase by around 55,000, roughly in line with the average job growth seen so far this year.

However, Tyler believes the September 11 Consumer Price Index (CPI) release may be even more important than the jobs report. The reason is that Powell views the U.S. as currently at full employment, so the Fed’s policy focus is now more on inflation.

If the August CPI remains stubbornly high or surpasses market expectations, investors may further increase bets on a September rate hike; conversely, if inflation is significantly below expectations, the urgency for the Fed to tighten policy immediately could diminish.

Thus, employment and inflation data performance ahead of the September 16 meeting may directly influence the market’s view of the Fed policy path and become a key variable affecting short-term trends in U.S. stocks.

Although JPMorgan has turned cautious in the short term, the bank does not believe this signals an imminent end to the U.S. equity bull market. Tyler stated that historically, bull markets typically end for one of two reasons: entering a rate hike cycle or an economic recession.

Currently, the probability of a U.S. recession in the coming quarters remains very low, so economic fundamentals do not yet provide grounds for an end to this bull market.

What is truly worth watching is the renewed possibility of a shift in Fed policy direction.

Powell’s hawkish speech last week means that the Fed’s September 16 meeting is no longer widely considered a “done deal"—a rate hike is now a real option. At the same time, since Powell is unwilling to provide the market with a clear advance rate path, once the Fed restarts hikes, investors will have to reevaluate how long the new tightening cycle might last and how high rates could eventually rise.

Therefore, JPMorgan’s temporary withdrawal of its bullish stance on U.S. stocks is more about guarding against potential market volatility in the next few weeks, rather than a complete shift to pessimism. Against the backdrop of rising interest rate uncertainty, weak seasonal performance in September, and possible momentum reversals in hot AI stocks, U.S. stocks may trend sideways in the short term. But as long as the U.S. economy avoids recession and corporate earnings continue to provide support, the bank believes that the fundamentals of the stock market remain solid.