JPMorgan traders: The "day of interest rate cuts in September" by the Federal Reserve is the time when "bullish sentiment is exhausted."

The market's expectation of a Federal Reserve rate cut in September may put the brakes on the current bull market in U.S. stocks.

Recently, the trading team at JP Morgan, led by Andrew Tyler, pointed out that if the Federal Reserve cuts rates as expected at the meeting on September 17, this market-friendly news, which has already been priced in, may instead become a catalyst for investors to take profits and temporarily exit. They believe that although the current bull market seems unstoppable, its internal support is weakening.

Since the beginning of this year, the S&P 500 index has set more than 20 historical highs, rebounding over 30% since the low in April, and the market has shown strong resilience so far. However, the impact of tariffs is beginning to show, coupled with recent weak employment data, which has made investors on edge ahead of the rate cut expectations.

As we enter a month that has historically performed the worst for U.S. stocks, the market's direction becomes particularly critical. Although JP Morgan's trading team maintains a "tactically bullish view with low conviction," they also pointed out multiple risk factors such as inflation, employment, and the trade war, advising investors to prepare for a potential market correction.

Beware of "Good News Fully Priced In"

Andrew Tyler's team expressed concerns about the upcoming Federal Open Market Committee (FOMC) meeting. They believe that although Thursday's Consumer Price Index (CPI) data is unlikely to prevent the Federal Reserve from cutting rates, comments from public companies and private enterprises indicate that there will be more "tariff-induced cost pass-through" in the future, the speed and scale of which remain uncertain.

Moreover, the rate cut itself may bring new inflationary pressures. Traders pointed out that a rate cut could stimulate labor demand, leading to typically "sticky" wage inflation, which could become a concern for the market in the future.

Historically and structurally, September also typically has a series of factors that suppress market performance. Pension funds and mutual funds will rebalance their portfolios at the end of the quarter, which may bring selling pressure.

Additionally, JP Morgan's trading team noted that retail investor participation usually declines in September. Meanwhile, during the quiet period before third-quarter earnings reports, companies will also reduce stock buybacks—corporate buybacks have been one of the key supporting forces of this bull market.

Different Voices in Historical Data

However, historical data shows that when the Federal Reserve chooses to cut rates during non-recession periods, the market performance in September often escapes seasonal weakness.

According to data analyzed by Bloomberg Industry Research strategist Nathaniel Welnhofer, since 1971, the S&P 500 index has averaged a decline of 1% in September. However, in years when the central bank cuts rates and the economy does not fall into recession, the index has averaged a gain of 1.2% in September.

In the face of escalating risks, different institutions have proposed coping strategies. Morgan Stanley's Michael Wilson acknowledged the existence of seasonal weakness last week but advised investors to "buy on dips."

Meanwhile, JP Morgan's trading team suggested hedging measures, stating, "We like VIX call spreads or long positions in VXX as a hedge." They also recommended that, due to the expectation of a rate cut weakening the dollar, **stock investors should consider increasing their exposure to gold to hedge against potential market volatility**