Following Federal Reserve Chair Walsh’s hawkish remarks at the Jackson Hole Global Central Bank Symposium last week, market bets on further rate hikes within the year have risen notably. In response, the trading desk at JPMorgan Chase (JPM) has decided to temporarily abandon its previously bullish stance and instead warn of potential volatility risks facing U.S. stocks in the coming weeks. However, the bank emphasized that this does not signify a full shift to bearishness, as U.S. economic data and corporate earnings continue to provide solid fundamental support.
The team led by Andrew Tyler, head of U.S. market intelligence, pointed out in a client report on Monday that ahead of the Federal Reserve’s next interest rate decision on September 16, uncertainty over the interest rate outlook has become a primary source of market pressure. Walsh not only stressed that inflation has not declined as expected but also reiterated his commitment to bringing inflation back to the 2% target, which promptly reinforced rate-hike expectations. Tyler believes that investors currently find it difficult to gauge both the duration and cumulative magnitude of policy tightening should rate hikes resume, and Walsh’s reluctance compared to his predecessor to pre-commit to a clear rate path further complicates such assessments.
Meanwhile, escalating geopolitical tensions in the Middle East have driven up oil prices, exacerbating inflation concerns, while U.S. Treasury yields continue to climb. The 10-year Treasury yield breached 4.75%, hitting its highest level since January 2025, and interest rate swap markets now price in nearly a 70% probability of a 25-basis-point rate hike in September. Rising yields not only elevate corporate financing costs but also diminish the relative appeal of highly valued equities, weighing on growth stocks and rate-sensitive sectors such as utilities.
Tyler’s shift to caution this time is primarily based on three considerations: an unclear interest rate outlook, historically weak September performance, and the risk of momentum unwinding in AI-related stocks. Monday already saw a pullback in U.S. equities, with the utilities sector leading declines, while energy stocks moved counter-cyclically higher on the back of oil price gains fueled by geopolitical conflicts. The S&P 500 closed down 0.33% on the day, although the index is still up about 2.5% month-to-date in August, on track for its best August performance since 2021.
It is worth noting that Tyler accurately predicted a market pullback in early June, and his latest warning also carries reference value. At the same time, however, he pointed out that overall investor net positioning is currently at neutral levels, with no signs of extreme crowding.
Ahead of the September 16 meeting, two key data releases will shape policy judgments: the August nonfarm payrolls report due this Friday, and the Consumer Price Index (CPI) scheduled for September 11. Economists expect nonfarm payroll growth of approximately 55,000, in line with the average pace this year; but Tyler believes the CPI is more critical, given that Walsh views the U.S. as already at full employment and thus places greater policy emphasis on inflation. If August CPI proves stubbornly high, rate-hike bets will intensify; if it comes in significantly below expectations, that could ease tightening pressures. Employment and inflation performance will therefore serve as crucial variables for short-term market direction.
Summary: JPMorgan’s tactical shift to caution is more about guarding against short-term volatility than a full-blown bearish outlook. The bank maintains that the end of a bull market typically stems from a rate-hiking cycle or an economic recession, and with the current U.S. economy facing still-low recession risks over the next few quarters, the fundamental picture remains sound. However, under the confluence of rising interest-rate uncertainty, seasonally weak September dynamics, and the potential for momentum fade in popular AI stocks, U.S. equities are likely to trade in a volatile range in the near term. What truly warrants vigilance is the possibility of a renewed shift in Fed policy direction—the September meeting is no longer a foregone conclusion, and Walsh’s communication style compels investors to reassess the full contours of the future rate-hike cycle. In the interim, markets will rely heavily on employment and inflation data for path guidance.
