JPMorgan Chase & Co.’s trading desk has dialed back its optimistic outlook on U.S. equities to a neutral, cautious stance after hawkish comments from Federal Reserve Chairman Kevin Warsh.

  • JPMorgan’s U.S. market intelligence team downgraded its near-term view on American stocks to "tactically cautious," forecasting sideways market movement in the coming weeks. 
  • Hawkish rhetoric from Fed Chairman Kevin Warsh indicated sticky inflation and sparked market expectations of a quarter-point rate increase at the September 16 policy meeting. 
  • The Dow Jones Index is set to gain for the fifth straight month. 

JPMorgan Chase & Co.’s trading team has stepped back from its bullish posture on U.S. equities, shifting to a tactically cautious stance ahead of the Federal Reserve’s upcoming policy decision.

The recalibration follows recent hawkish remarks by Federal Reserve Chairman Kevin Warsh, which prompted financial markets to price in an increased probability of interest-rate hikes before the end of the year.

In a note to clients on Monday, accessed by Bloomberg, Andrew Tyler, head of U.S. market intelligence at JPMorgan, noted that while fundamental economic conditions and corporate earnings remain robust, short-term pressures are likely to cause stock indexes to move sideways rather than extend recent gains.

Changing Outlook at the Federal Reserve

Market sentiment shifted after Kevin Warsh’s Jackson Hole speech on Friday, which emphasized that inflation shows little sign of meaningfully cooling.

Unlike past central bank leaders, Warsh has offered limited forward guidance regarding the magnitude and duration of potential rate increases. Tyler pointed out that if the central bank resumes raising borrowing costs, investors will face heightened uncertainty about the trajectory of monetary policy.

Financial markets responded swiftly to the hawkish tone. The yield on the benchmark U.S. 10-year Treasury note climbed past 4.75% on Monday, hitting its highest level since January 2025. Meanwhile, interest-rate swap contracts signaled about a 70% probability that the Fed will implement a quarter-point rate increase next month, according to Bloomberg data.

The CME FedWatch Tool on Monday indicated a 65.9% probability of a 25 basis point hike in the September rate-setting meeting, up from 57%. 

September Seasonality and Sector Pressures

JPMorgan's tactical pivot comes as Wall Street enters September, traditionally the weakest calendar month for U.S. stock performance.

Beyond monetary policy concerns, Tyler highlighted several near-term vulnerabilities for equity markets, including a cooling of momentum among high-valuation artificial intelligence stocks. Rising energy prices following recent military strikes between the U.S. and Iran and increased pressure on rate-sensitive utilities and defensive sectors.

Despite these obstacles, broader market positioning remains largely balanced, and the S&P 500 Index was still on track to post an approximate 2.5% gain for August, while the Dow was set to end its fifth straight month in the green.

Critical Economic Data Ahead

Investors are now focused on incoming macroeconomic reports to gauge the Fed's next move. The upcoming monthly U.S. employment report, projected by economists to show an addition of 55,000 jobs in August, will serve as an initial indicator following July's unexpected contraction.

"Equity bull markets tend to end with either a hiking cycle or a recession," Tyler wrote, reassuring investors that an economic contraction remains highly improbable in the near term. Nevertheless, he cautioned that the central bank’s forthcoming gathering has officially turned into a "live meeting."

The SPDR S&P500 ETF (SPY), tech-heavy Invesco QQQ (QQQ), and the SPDR Dow Jones ETF (DIA) fell between 0.3% and 0.7% on Monday, with an overall ‘bullish’ retail sentiment.

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