JPMorgan's market intelligence team downgraded its tactical view on US stocks to "cautious/neutral," expecting the index to remain volatile over the next 2-3 weeks, with potential for further amplification of volatility at the sub-index and individual stock levels. At the same time, the team still believes the fundamentals of the US economy and corporate earnings remain strong, therefore this adjustment is more geared towards short-term risk management.
Pressure stems from several variables changing simultaneously: Following Jackson Hole, the implied probability of a September rate hike in the bond market has risen from approximately 35% to 58%; the JPMorgan momentum index has fallen more than 21% from its June high, and the "Classic" momentum index has fallen nearly 34%, significantly exceeding the typical 10%-15% retracement range. Positioning also lacks a clear direction; the US TPM remains at the 37th percentile, and historical patterns point to a volatile market over the next 3-4 weeks.
Therefore, the next phase requires simultaneous observation of inflation and rate hike expectations, credit spreads, and the speed of momentum clearing. A significant correction at the index level is not guaranteed, but stocks with high crowding and previously momentum-driven growth may continue to experience greater internal volatility.
