The hawkish statement from Waller stirs the market, JP Morgan temporarily abandons its bullish outlook on US stocks, and will shift to a cautious wait-and-see approach in the coming weeks.

JPMorgan Chase's trading team has temporarily abandoned its prior bullish stance on the U.S. stock market and has adopted a cautious outlook for market trends over the next few weeks. Following hawkish comments from Fed Chair Patrick Harker last week, the market has significantly ramped up its bets on further interest rate hikes this year, making uncertainty around interest rate prospects one of the main pressures facing the U.S. stock market in the short term. However, JPMorgan emphasizes that this does not mean it has turned bearish on U.S. stocks. The bank believes that U.S. economic data and corporate earnings still provide support, and the fundamentals of the stock market remain strong. It is just that several short-term uncertainties may lead to a volatile phase for U.S. stocks before the Fed announces its next interest rate decision on September 16. The trading team, led by Andrew Tyler, head of U.S. market intelligence at JPMorgan, decided to temporarily abandon its bullish outlook due to significant uncertainty regarding the future path of interest rates ahead of the Fed's policy meeting on September 16. In a report to clients on Monday, Tyler stated that the fundamentals of U.S. stocks remain strong, but a series of short-term factors in the coming weeks could lead the market to remain in sideways trading, prompting the team to adopt a cautious wait-and-see approach. The biggest change comes from expectations regarding Fed policy. Harker stated at the widely watched Jackson Hole Global Central Bank Conference last Friday that U.S. inflation has not shown substantial signs of slowing and reiterated that the Fed is committed to bringing inflation back down to its 2% target. This statement quickly reinforced market expectations for a resumption of Fed rate hikes. Tyler pointed out that if the Fed actually begins to raise interest rates, it would be challenging for investors to determine how long this tightening cycle would ultimately last and how much cumulative rate hikes would amount to. Meanwhile, Harker has been less willing than his predecessor to provide the market with clear guidance on the future path of interest rates, further complicating investors' ability to gauge policy direction. As tensions in the Middle East escalate and drive oil prices higher, concerns about U.S. inflation have intensified, leading U.S. Treasury yields to continue rising on Monday. The yield on the 10-year U.S. Treasury bond breached 4.75%, reaching this level for the first time since January 2025. At the same time, the interest rate swap market shows that investors currently expect a nearly 70% probability of a 25 basis point rate hike by the Fed at the September meeting. Rising interest rates pose new pressures on the U.S. stock market. On one hand, higher Treasury yields increase corporate financing costs; on the other hand, the rise in risk-free yields diminishes the relative attractiveness of high-valuation stocks, making growth stocks and interest-sensitive sectors like utilities more vulnerable to impacts. Notably, Tyler had previously accurately assessed the short-term risks to the U.S. stock market. He turned cautious on the market in early June, following which the U.S. stock market experienced several weeks of declines. This time, he expressed caution again, citing three main short-term risks: significant uncertainty regarding the interest rate outlook, September historically being a month of weaker seasonal performance for U.S. stocks, and prior surges in AI-related stocks potentially facing a retreat in momentum trading. However, Tyler also noted that investors' overall net positions in the stock market are still roughly at neutral levels, without signs of extreme overcrowding. As the market approaches September, U.S. stocks will also face seasonal pressures. Historically, September is typically one of the weakest months for U.S. stock returns in the year. This year is further complicated, as investors not only need to judge whether the Fed will resume rate hikes, but also to monitor whether the key driver of the U.S. stock rallyinterest in AI investmentscan be sustained. AI-related stocks, which have seen significant gains, may face pressure from profit-taking and a retreat of momentum funds. Simultaneously, if Treasury yields continue to rise, the valuation pressure on high-valuation tech stocks may further increase. On Monday, U.S. stocks showed signs of adjustment. The utilities sector, which is more sensitive to interest rates, led the decline, while energy stocks strengthened in contrast as the U.S. and Iran resumed mutual attacks, pushing international oil prices up. By the close, the S&P 500 index fell 0.33%. However, the index is still up about 2.5% since August, poised to record its best August performance since 2021. Ahead of the September 16 Fed meeting, the U.S. will also release two key economic data sets. The first is the August non-farm payroll report, which will be released this Friday. Economists expect that after an unexpected decline in employment numbers in July, U.S. non-farm payrolls in August may increase by about 55,000, roughly in line with the average employment growth level so far this year. However, Tyler believes that the Consumer Price Index (CPI) report, set to be released on September 11, may be more important than the employment report. This is because Harker believes that the U.S. is currently at full employment, so the Fed's policy focus is more inclined towards inflation at this stage. If the August CPI continues to show stubbornness or exceeds market expectations, investors may further increase their bets on a rate hike in September; conversely, if inflation is significantly below expectations, it may weaken the necessity for the Fed to tighten policy immediately. Therefore, the performance of employment and inflation data before the September 16 meeting may directly influence the market's judgment on the Fed's policy path and become an important variable affecting the short-term trend of U.S. stocks. Although JPMorgan has temporarily turned cautious, the bank does not believe this signals the imminent end of the U.S. stock bull market. Tyler stated that historically, stock bull markets usually end due to one of two factors: entering a rate-hiking cycle or an economic recession. At present, the possibility of a recession in the U.S. economy over the next few quarters remains very low, so the economic fundamentals are still insufficient to warrant the conclusion of this bull market. What is truly concerning is the potential for a change in the direction of Fed policy to emerge once again. Harker's hawkish remarks last week indicated that the Fed's September 16 meeting is no longer seen as one with outcomes that the market generally considers to be certain; rate hikes have become a realistic option. At the same time, because Harker is unwilling to provide the market with clear guidance on the future path of interest rates, once the Fed resumes rate hikes, investors will need to reassess how long the entire tightening cycle may last and to what levels interest rates may ultimately rise. Thus, JPMorgan's temporary abandonment of its bullish outlook for U.S. stocks is more about preparing for potential market volatility over the next few weeks rather than a complete shift to pessimism. Amid rising uncertainty regarding interest rates, typically weak seasonal performance in September, and the potential retreat of momentum in popular AI stocks, U.S. stocks may primarily experience volatility in the short term; however, as long as the U.S. economy avoids falling into recession and corporate earnings continue to provide support, the bank believes the fundamentals of the stock market remain solid.