MW Why JPMorgan is warning the Fed rate cut everyone expects could sink stocks

By Barbara Kollmeyer

Even powerful retail investors are starting to step back

Stock investors could be facing a "sell-the-news" moment when the Fed meets this month, warns JPMorgan.

Since Fed Chairman Jerome Powell's comment that a rate-cut could be justified at Jackson Hole last month, the S&P 500 has gained nearly 2%, bringing the year's total to just over 10%.

Traders now expect three cuts in 2025, starting with a 25-basis point cut on Sept. 17, and several in 2026. Those, many say, could help juice a stock market that has shook off all manner of perceived headwinds this year.

Read: Stock-market bulls are banking on rate cuts as CPI inflation looms

But what if that much-awaited first interest-rate reduction causes stocks to drop? That's the message from our call of the day as JPMorgan's trading desk warn clients that a potential selloff could be ahead.

Led by Andrew Tyler, the trading team voiced "concerns that the September 17 Fed meeting which delivers a 25bp cut, could turn into a 'sell the news' event as investors pullback to consider macro data, Fed's reaction function, potentially stretched positioning, a weaker corporate buyback bid, and waning participation from the retail investor."

Breaking that down starting with macro concerns, Tyler and his colleagues say that with labor supply waning, rate cuts could spark more demand for workers, triggering "sticky" wage inflation. Inflation-related comments from public and private companies suggest "more tariff-induced cost passthrough is coming," they add.

The Fed's reaction function is a simply a reference to how a central bank adjusts its policy according to changing economic data. By that, the team is referring to how much inflation the Fed is willing to tolerate at the expense of shoring up the jobs market.

As for "stretched positioning," the JPMorgan team spoke of "above average, but declining (?)" exposure to U.S. stocks, with hedge funds "small sellers" of North America and Asia Pacific. Citigroup strategists also spoke of easing momentum for U.S. stocks in a note that published Tuesday.

And while share repurchases from S&P 500 companies hit a record in the first half of 2025, Goldman Sachs said that's been stalling of late, in a note to clients on Monday.

Finally, JPMorgan speaks of "waning" momentum from retail investors, who have been a buy-the-dip force for stocks this year, forcing bigger Wall Street players to catch up. Seasonal factors appear to enter in here, with Citadel Securities strategist Scott Rubner recently pointing out how "retail options volume typically wanes in September before rebounding into the final quarter of the calendar year."

The sell-off might not last long: Tyler and his colleagues are sticking to a "lower conviction tactical bullish call" on equities, as they say the current bull market for stocks seems "unstoppable." They see an AI theme re-emerging as a "significant support" for stocks, especially if the Magnificent 7, which hit a new record last week, expands to include Broadcom $(AVGO)$ after its recent impressive results.

One suggestion from Tyler and his colleagues, is that investors may want to consider either adding or upping their gold (GC00) exposure as rate-cut expectations push down the dollar DXY. Goldman Sachs, which expects another 2% gain for the S&P 500 this year, has also advised exposure to gold, through mining stocks.

Read: Fed is almost certain to cut rates by 25 basis points after months of debate. Why are so many people unhappy with that?

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are rising modestly, while longer-term BX:TMUBMUSD10Y BX:TMUBMUSD30Y Treasury yields are modestly up and oil (CL00) (BRN00) is also gaining. Gold (GC00) is flirting with a record $3,700 an ounce.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6495.15    0.54%   1.91%   10.43%   18.72% 
   Nasdaq Composite                                                     21,798.70  1.60%   1.93%   12.88%   29.10% 
   10-year Treasury                                                     4.064      -19.90  -23.00  -51.20   41.40 
   Gold                                                                 3685.8     2.40%   8.42%   39.65%   44.79% 
   Oil                                                                  62.84      -4.24%  -0.38%  -12.56%  -5.23% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

In a mega-mining deal, Anglo American (UK:AAL) agreed to a $53 billion merger of equals with Canada's Teck Resources $(TECK)$ (CA:TECK.A), with shares of the latter up 23%.

Tourmaline Bio (TRML) stock is up over 50% after Novartis $(NVS)$ said it was buying the U.S. biotech at a near 60% premium.

Nebius shares (NBIS) are up a similar amount after the neocloud company signed a multi-year deal worth $17.4 billion with Microsoft $(MSFT)$. From the archives: The stock market is turning into a casino - raise cash, and also buy this AI company, says strategist

Apple $(AAPL)$ is expected to reveal four new iPhones, including a slimmer one, and other products at the "Awe Dropping" event starting at 1 p.m. Eastern.

Oracle $(ORCL)$ (preview here) and Synopsys $(SNPS)$ will report results after the close.

The Bureau of Labor Statistics will publish preliminary benchmark payroll revisions for April 2024 to March 2025 at 10 a.m. - some expect a downgrade of some 500,000 jobs.

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The chart

From Oxford Economics, is this chart underscoring the U.S. in everything from world trade to the stock market. "It's unlikely that the U.S. will grow more slowly than other advanced economies for an extended period, in part because a weaker U.S. will drag down other economies," said lead economist Adam Slater, who forecasts the U.S. economy to grow at a 1.2% to 1.3% rate to close the year.

Top tickers

These were the top-searched stock-market tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   NBIS    Nebius Group 
   OCTO    Eightco Holdings 
   OPEN    Opendoor Technologies 
   NIO     NIO 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   AMD     Advanced Micro Devices 

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-Barbara Kollmeyer

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September 09, 2025 06:56 ET (10:56 GMT)

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