Walsh's hawkish statement stirs up the market, and Xiaoma temporarily abandons bullish US stocks and instead waits carefully for the next few weeks

The Zhitong Finance App learned that the J.P. Morgan Chase (JPM.US) trading team temporarily abandoned its previous bullish stance on US stocks and is instead cautious about market trends over the next few weeks. After Federal Reserve Chairman Walsh delivered a hawkish speech last week, the market clearly raised its bets on further interest rate hikes this year. As a result, uncertainty about interest rate prospects has become one of the main pressures facing US stocks in the short term.

However, J.P. Morgan stressed that this does not mean that it has turned bearish on US stocks. The bank believes that US economic data and corporate profits are still supported, and the fundamentals of the stock market are still strong. However, before the Federal Reserve announces the next interest rate decision on September 16, many short-term uncertainties may cause US stocks to enter a volatile phase.

The trading team led by Andrew Tyler, head of US market intelligence at J.P. Morgan Chase, said that before the Federal Reserve's September 16 policy meeting, the team decided to temporarily abandon the previous bullish view due to great uncertainty about the future interest rate path.

Tyler said in a report to clients on Monday that the fundamentals of US stocks are still strong, but a series of short-term factors in the next few weeks may cause the market to remain volatile, so the team is currently choosing to remain cautious and wait.

Among them, the biggest change comes from the Federal Reserve's policy expectations. Walsh said at the much-publicized annual meeting of global central banks in Jackson Hole on Friday that there has been no substantial slowdown in US inflation, and once again emphasized that the Federal Reserve will push inflation back to the 2% target.

This statement quickly strengthened the market's expectations that the Federal Reserve would raise interest rates again. Tyler pointed out that if the Federal Reserve actually starts raising interest rates, it is currently difficult for investors to determine how long this round of policy tightening will eventually last, and how much the cumulative rate hike will reach. At the same time, compared to his predecessor, Walsh was less willing to reveal the future interest rate path to the market in advance, which further made it more difficult for investors to judge the direction of the policy.

US bond yields continued to rise on Monday as the escalation of the situation in the Middle East boosted oil prices and market concerns about US inflation further heated up. The 10-year US Treasury yield surpassed 4.75%, rising to this level for the first time since January 2025. Meanwhile, the interest rate swap market shows that investors currently expect the probability that the Federal Reserve will raise interest rates by 25 basis points at the September meeting is close to 70%.

A renewed rise in interest rates is putting new pressure on US stocks. On the one hand, higher US bond yields will increase corporate financing costs; on the other hand, rising risk-free yields will also reduce the relative appeal of highly valued stocks, so interest rate sensitive sectors such as growth stocks and utilities are often more vulnerable to impact.

It is worth noting that Tyler previously judged the short-term risk of US stocks more accurately. He turned cautious about the market in early June, after which US stocks continued to decline for several weeks.

Cautious once again this time around, he mainly listed three short-term risks: interest rate prospects are highly uncertain, September is usually a month where the seasonal performance of US stocks is weak, and AI concept stocks, which have risen sharply before, may face a decline in momentum trading.

However, Tyler also pointed out that at present, investors' overall net positions in the stock market are still generally at a neutral level, and there is no obvious phenomenon of extreme crowding.

As the market enters September, US stocks will also face seasonal pressure. Judging from historical performance, September is usually one of the months with the weakest annual returns for US stocks. This year's situation is even more complicated. Investors need not only to determine whether the Federal Reserve will restart interest rate hikes, but also observe whether the AI investment boom, which has driven the rise in US stocks in the past, can continue to be maintained.

AI concept stocks, which have risen sharply before, may face pressure from profit recovery and withdrawal of momentum capital. If US bond yields continue to rise at the same time, the valuation pressure on overvalued technology stocks may increase further.

US stocks were adjusted to a certain extent on Monday. The utility sector, which is more sensitive to interest rates, led the decline, while the US and Iran once again attacked each other after about a month, driving up international oil prices, while energy stocks bucked the trend.

By the close, the S&P 500 index was down 0.33%. However, the index has accumulated a cumulative increase of about 2.5% since August, and is expected to record the best performance since August 2021.

Ahead of the Federal Reserve policy meeting on September 16, the US will also release two much-publicized economic data. The first is the August non-farm payrolls report released this Friday. Economists expect that after an unexpected drop in employment in July, the number of non-farm payrolls in the US may increase by about 55,000 in August, roughly in line with the average employment growth level since this year.

However, Tyler believes that compared to the employment report, the US Consumer Price Index (CPI) released on September 11 may be more important. The reason is that Walsh believes that the US is currently in a state of full employment, so the focus of the Federal Reserve's policy at this stage is more on inflation.

If the CPI performance in August continues to be stubborn or even higher than market expectations, investors may further increase their bets on the September rate hike; conversely, if inflation falls significantly lower than expected, it may weaken the need for the Federal Reserve to immediately tighten its policy.

Therefore, before the September 16 meeting, the performance of employment and inflation data may directly affect the market's judgment on the Fed's policy path and become an important variable influencing the short-term trend of US stocks.

Although J.P. Morgan Chase turned cautious in the short term, the bank did not judge that the US stock bull market was coming to an end. Tyler said that judging from historical experience, a stock bull market usually comes to an end due to one of two factors: one is entering a cycle of interest rate hikes, and the other is that the economy falls into recession.

Looking at it now, the possibility that the US economy will experience a recession in the next few quarters is still very low, so economic fundamentals are not enough to form a reason to end this bull market.

What is truly alarming is the possibility that the direction of the Federal Reserve's policy is once again changing.

Walsh's hawkish speech last week meant that the Federal Reserve meeting on September 16 is no longer a meeting where the market generally believes that the results are basically certain; raising interest rates has become a realistic option. At the same time, since Walsh is unwilling to provide the market with a clear interest rate path ahead of time, once the Federal Reserve restarts interest rate hikes, investors will also need to re-evaluate how long the entire interest rate hike cycle may last in the future and what level the final interest rate may rise to.

As a result, J.P. Morgan Chase temporarily gave up on bullish US stocks this time, more to prevent market fluctuations in the coming weeks, rather than a complete shift to pessimism. Against the backdrop of rising interest rate uncertainty, weak seasonal performance in September, and a possible decline in the momentum of popular AI stocks, US stocks may be dominated by shocks in the short term; however, as long as the US economy avoids falling into recession and corporate profits continue to provide support, the bank believes that the fundamentals of the stock market will remain stable.