US stocks face a fresh source of pressure as investors prepare for the Federal Reserve’s September policy meeting. Fed Chair Kevin Warsh used his Jackson Hole speech to send a clear message about inflation: the problem has not improved enough, and the central bank may still have more work to do.
His comments changed the mood across financial markets. Traders now see a much higher chance of a rate increase at the Fed’s September 16 meeting. At the same time, JPMorgan’s US market intelligence team has moved from a bullish view to a “tactically cautious / neutral” stance on stocks.
This does not mean JPMorgan expects a major market crash. The bank still sees strong economic data and solid corporate earnings as support for stocks. But it expects the next few weeks to be less comfortable, with markets more likely to move sideways and individual stocks more likely to face sharp price moves.
Why Kevin Warsh’s Speech Matters
Warsh’s comments at Jackson Hole were important because investors were looking for clues about what the Fed may do next. Instead of offering a clear promise about the next meeting, Warsh focused on the need to bring inflation back toward the Fed’s 2% target.
He said recent progress on inflation has not been strong enough. That message matters because the Fed has to balance two major risks. It does not want inflation to stay high for too long, but it also does not want to put too much pressure on the economy.
Warsh’s tone was more hawkish than many investors expected. He did not directly say that the Fed would raise rates in September, but his comments made a hike look much more possible. The September meeting is now seen as a “live meeting,” which means a rate move is a real possibility rather than a remote one.
Rate-Hike Odds Jump
The change in market expectations has been fast. Before Warsh’s Jackson Hole speech, the chance of a September rate hike was much lower.
CME FedWatch data showed the odds of a 25-basis-point hike at the September 16 meeting at about 65.9% after the speech, up from 57% on Friday and 41.4% a week earlier. Other market reports have placed the probability close to 70%.
That is a major shift in a short period. It shows that investors have started to take the possibility of tighter monetary policy much more seriously.
The exact probability can change each day as new economic data arrives. A strong jobs report or a hotter inflation report could push the odds higher. Softer data could have the opposite effect.
Treasury Yields Add More Pressure
The bond market has also reacted to the new rate outlook. The US 10-year Treasury yield moved above 4.75% on Monday, its highest level since January 2025.
Higher Treasury yields can create problems for stocks because they offer investors a more attractive return outside the stock market. They also raise the discount rate used to value future company profits. This can hurt stocks whose prices depend on strong earnings growth many years from now.
The effect is often stronger in technology and other growth stocks. Many high-growth companies have large parts of their expected value tied to future profits. When interest rates rise, those future profits become less valuable in today’s terms.
That is one reason the recent change in rate expectations has raised concern about high-flying AI stocks.
JPMorgan Turns More Careful
JPMorgan’s trading desk has now moved away from its earlier bullish position. The team led by Andrew Tyler, head of US market intelligence, says it has become “tactically cautious / neutral.”
The wording is important. JPMorgan is not saying that the long-term bull market has ended. Instead, the bank expects the next two to three weeks to be difficult for investors.
Tyler said near-term factors could cause stocks to “chop sideways.” The main concerns include uncertainty about interest rates, normal seasonal weakness, possible weakness in AI shares and a rise in corporate credit issuance after Labor Day.
The bank also believes overall stock positioning remains close to neutral. That means investors are not extremely exposed to one side of the market, but there is still room for sharp moves if expectations change.
September Could Be a Difficult Month
The timing also adds to the concern. September has historically been one of the weakest months for US stocks.
According to Carson Research, the S&P 500 has been positive in only 45% of September sessions since 2006, with an average decline of 0.6%. That does not mean stocks must fall every September, but it shows that the month has often been difficult for investors.
This year, the seasonal pattern comes at a sensitive time. The market already faces uncertainty about rates, inflation, oil prices and the strength of the AI rally.
As a result, even a small change in economic data could create a larger reaction in stocks.
AI Stocks Face a New Test
AI stocks have been one of the strongest parts of the US market. Many companies linked to AI have seen huge investor interest and high valuations.
That strength could become a risk if rates stay high or rise further. Investors may start to question whether the expected future profits of these companies are enough to justify their current prices.
JPMorgan has warned about a possible unwind in high-flying AI shares. This does not mean the bank believes AI has lost its long-term value. Instead, it means some AI stocks may have moved so far, so fast, that they are more sensitive to a change in market mood.
A rise in Treasury yields can therefore create pressure even when the underlying AI business story remains strong.
Jobs Data Will Be Important
The next major test will come from economic data. The August jobs report, due Friday, will give investors a better idea of how strong the US labor market remains.
JPMorgan’s Tyler said the jobs report will be important. A strong result could support the case for higher rates if it suggests the economy remains too strong for inflation to fall quickly.
A weak report could make the Fed more careful. If the labor market shows clear signs of weakness, policymakers may worry more about economic growth and employment.
The market therefore has two competing questions. Is inflation still too high? And is the economy strong enough to handle higher rates?
The answer to both questions will shape the Fed’s September decision.
Inflation Data May Matter Even More
The September 11 consumer-price report could be even more important.
Warsh has made price stability a major part of his message. If inflation remains stubborn, pressure on the Fed to raise rates could grow. If inflation shows a clear improvement, the case for a hike could weaken.
This makes the inflation report one of the most important pieces of data before the September 16 meeting.
Markets may also pay close attention to oil prices. Higher oil prices can make inflation harder to control, especially if the increase lasts for a long time. That could create another problem for the Fed at a time when investors already worry about price pressures.
A Rate Hike Does Not Mean a Market Crash
It is important not to take JPMorgan’s cautious view as a prediction of a major stock market collapse.
The bank still believes the wider economic picture remains supportive. Corporate earnings remain strong, and JPMorgan says a recession is unlikely over the next few quarters.
That matters because bull markets usually face their biggest threats from either a major rate-hike cycle or a recession. At present, JPMorgan does not see a recession as the main risk.
The immediate concern is much simpler: stocks may have a harder time rising while investors try to understand the Fed’s next move.
This could lead to more volatility between sectors and individual companies, even if the major indexes do not suffer a large decline.
What Investors Are Watching Now
The market has entered a period where every major economic report can change expectations. The August jobs report, the September 11 inflation report, Treasury yields and oil prices will all matter before the Fed meets on September 16.
The biggest question is whether Warsh’s hawkish message will turn into an actual rate increase.
For now, traders are preparing for that possibility. Rate-hike odds have moved sharply higher, Treasury yields have risen, and JPMorgan has reduced its short-term confidence in US stocks.
Still, this is not a clear signal that the long-term stock market trend has ended. It is a warning that the easy part of the recent rally may be over for now.
Investors could face a more uncertain market in September, with higher rates, inflation concerns and expensive AI stocks all under close watch. The next few economic reports may decide whether this fear fades or becomes a much larger market problem.
For now, the message from Wall Street is cautious rather than bearish: the Fed may have more work to do, and stocks may need to adjust to that new reality.
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