JPMorgan and Citadel Securities advise investors to take a cautious stance
Maybe it's time to get cautious in portfolios, leading strategists say.
Maybe the expression should be "sell in June and go away." The S&P 500 SPX has meandered through a dud of a three-month period, rising just over 1%. And as summer winds down, there's a new air of nervousness emerging on Wall Street.
Strategists at Citadel Securities and JPMorgan both said they have turned temporarily cautious, though neither is saying the bull market is over.
JPMorgan's market intelligence team, led by Andrew Tyler, on Monday said they were moving to a "tactically cautious/neutral view," while Citadel Securities' head of equity and equity derivatives strategy Scott Rubner said the "near-term asymmetry has shifted."
Both flagged - as others have done - the historically rough month of September, particularly ahead of the midterm elections. But the wariness extends beyond simply the calendar.
Tyler and team note that equity bull markets tend to end with either a hiking cycle or a recession. The latter possibility seems comfortably remote, but after Kevin Warsh's speech in Jackson Hole, an interest-rate hike this month not only is a possibility but further increases may also be in store.
Other factors: positioning that is not giving a clean read on market direction, a likely increase in credit issuance after Labor Day, the unwinding of momentum and the possibility that chip and other artificial-intelligence plays fail to move after chip giant Broadcom's (AVGO) results this week, says the JPMorgan memo.
Rubner, meanwhile, notes the lull in the earnings reporting calendar, the typically restrained activity by retail investors during September and the pre-earnings blackout period that will block corporate buybacks.
The top 100 pension funds are 112% funded, their highest levels since 2001, which will encourage them to "de-glide and immunize" their portfolios by selling some stock and buying bonds into the end of the quarter, he writes. Another reset possibility will come with $9.6 trillion of U.S. options currently set to expire between now and Sept. 18 - including $6.2 trillion worth on Sept. 18 alone.
Rubner says downside protection is inexpensive - he calculates that demand for market protection is in the bottom first percentile of the entire year. An S&P 500 put expiring in a month set about 3% below the current market price fell on Friday to its cheapest level since Dec. 2024. Besides buying protection on stocks, Rubner suggests bonds may provide the better opportunity.
The JPMorgan playbook is slightly different, expressed through sector and style rotations. They like going long the Nasdaq 100 and short the Russell 2000 and prefer Magnificent Seven MAGS and software IGV over semiconductor SOXX and memory DRAM stocks. They like large-cap banks given the economic growth story and consumer discretionary XLY if energy prices move lower. Healthcare stocks tend to be the best-performing defensive sector into the midterms, they add. They have their own hedge recommendations as well, which would be to short credit exchange-traded funds and buy equity volatility products.
The market
S&P 500 futures (ES00) (NQ00) turned lower early Tuesday as oil prices (CL00) and bond yields BX:TMUBMUSD10Y rose, notably in Japan where the 10-year BX:TMBMKJP-10Y crossed 3% for the first time in decades.
Key asset performance Last 5d 1m YTD 1y S&P 500 7686.14 0.43% 1.13% 12.28% 18.98% Nasdaq Composite 26,370.89 1.50% 1.76% 13.46% 22.91% 10-year Treasury 4.792 15.80 17.30 62.00 52.90 Gold 4415.3 -6.37% 6.80% 1.92% 22.66% Oil 87.92 8.40% 17.01% 53.14% 33.98% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Two oil supertankers were reportedly hit by projectiles in the Strait of Hormuz.
The Chinese fast-fashion retailer Shein suffered through a rocky debut.
The economics calendar includes the Institute for Supply Management manufacturing index as well as job openings data.
Earnings are due after the close from Palo Alto Networks (PANW), Dell Technologies (DELL) and MongoDB (MDB).
Party balloons could become a luxury as the Iran war spurs a helium shortage
The chart
Robin Brooks, the former Goldman Sachs currency strategist who's now a fellow at the Brookings Institution, plots the weighted average of U.S. data surprises vs. the 10-year U.S. Treasury yield. His point is that the data would point to weaker yields, not higher. "Weak data should weigh on 10-year yield as markets revise their expectations down for inflation and growth, but the opposite has been true. 10-year yield is up, even as data surprises have been negative. That's a sign that demand for Treasury debt is weaker than first meets the eye," says Brooks.
Top tickers
Here were the most active stock-market tickers as of 6 a.m. Eastern.
Ticker Security name NVDA Nvidia TSLA Tesla SPCX SpaceX MU Micron Technology GPRO GoPro AMZN Amazon.com AAPL Apple TSM Taiwan Semiconductor Manufacturing Co. AMD Advanced Micro Devices MSFT Microsoft
-Steve Goldstein