JP Morgan Trading Desk: "Bottom-fishing in US Stocks"!

JP Morgan's market intel team has clearly informed clients that the sharp decline in U.S. tech stocks on Tuesday created an opportunity to buy the dip in U.S. stocks.

On August 20, according to news from the Wind Trading Desk, JP Morgan's market intel team pointed out that the recent pullback in tech stocks has created a buying opportunity. However, investors need to closely monitor two key variables:

• First, the "stagflation signals" that could reverse bullish sentiment, namely the weak PMI preliminary value and worsening unemployment data to be released this week, or Federal Reserve Chairman Jerome Powell's hawkish remarks at the Jackson Hole meeting.

• Second, next week's earnings report from NVIDIA, which is seen as a key catalyst that could reignite the theme of artificial intelligence investment.

JP Morgan noted that although a rotation from tech stocks to cyclical stocks, value stocks, and small-cap stocks may occur under the support of U.S. macro data, the decline in tech stocks on Tuesday is not the true beginning of this rotation, but rather a bearish expression before a potential rotation.

Due to the recent decline in U.S. stocks being driven by a sell-off in tech stocks, the importance of next week's NVIDIA earnings report even surpasses that of this week's Jackson Hole global central bank annual meeting.

Momentum Factor Experiences Significant Pullback, But Remains Within Normal Range

The U.S. stock market showed clear structural differentiation in the first half of the week.

The S&P 500 index experienced its most severe single-day drop in nearly three weeks, while the Nasdaq is heading towards its largest two-day decline since April. The core of this adjustment is the pullback of the momentum factor and the sell-off of AI concept stocks, while European and Asian markets recorded significant outperformance, mainly because tech stocks have a smaller weight in these markets.

It is noteworthy that on Wednesday, U.S. momentum stocks continued to be under pressure, with Goldman Sachs' high-beta momentum basket having fallen to flat levels since 2025 after hitting a historical high just two weeks ago.

From a technical perspective, the current momentum factor has pulled back about 7%, which is comparable to the average pullback of 8.3% (median 8.5%, range 4.5%-13%) over the past five pullbacks, indicating that the adjustment magnitude remains within historical normal ranges.

As for the reasons for the pullback, JP Morgan believes it is the result of multiple factors acting together, essentially a concentrated sell-off targeting large tech stocks, the seven tech giants, and the AI theme. Specific reasons include: high valuations, crowded positions, and risk-off selling ahead of NVIDIA's earnings report (August 28).

"Irrelevant" Jackson Hole Annual Meeting

The market does not have high expectations for the upcoming Jackson Hole global central bank annual meeting this week.

The meeting will open on Thursday (August 21), with Federal Reserve Chairman Jerome Powell scheduled to speak at 10 PM Beijing time on Friday.

JP Morgan clearly stated that the market generally expects Federal Reserve Chairman Powell will not disclose any substantive new information, so the market is unlikely to react strongly to this. The fundamental reason is that the Federal Reserve's decision on whether to cut interest rates in September will strictly depend on future economic data, namely the non-farm payroll report on September 5 and the consumer price index on September 11.

Therefore, this Jackson Hole meeting is likely to be a "non-event."

The Real Focus for Investors: NVIDIA Earnings Report

Based on the above analysis, JP Morgan advises clients to view the recent market pullback as a buying opportunity.

However, this is a conditional bullish outlook. JP Morgan emphasizes that their view will turn pessimistic once evidence of "stagflation" appears:

• Weaker manufacturing/services PMI preliminary values

• Deteriorating unemployment data

• Powell's hawkish speech on Friday

Conversely, from a bullish perspective, the biggest potential catalyst comes from next week's NVIDIA earnings report.

(Comparison chart of NVIDIA's net profit and stock price trends)

JP Morgan expects that a strong earnings report or positive performance guidance could reignite market enthusiasm for the AI theme, thereby driving a rebound in tech stocks and the overall market