JP Morgan: Before the U.S. stock market hits 7,000 points by the end of the year, it faces five major short-term downside risks

JP Morgan released its latest outlook, believing that although the S&P 500 index is expected to challenge the 7,000-point mark by the end of the year, investors need to be wary of a series of potential downside risks that could lead to a short-term market correction before enjoying this potential rally.

Recently, the JP Morgan Market Intel team pointed out in its report that U.S. stocks may experience a moderate further decline next week, but will then enter "gametime" and are expected to accelerate towards 7,000 points before November.

Analyst Jonathan Schlegel noted that concerns over seasonal weakness, excessive rebound in the stock market, a long period without market corrections, overly optimistic retail investor sentiment, and the market having already priced in expectations of Federal Reserve easing could all bring short-term downward pressure to the market.

However, the report also added that the likelihood of further gains in U.S. stocks from now until the end of the year remains greater than that of declines. The team maintains its "tactically bullish" view and advises investors to buy the dip on any corrections that occur before the end of the year.

Five Key Short-Term Downside Risks

The JP Morgan team detailed five key risks that could trigger a short-term market correction, which investors need to closely monitor:

1. Seasonal Factors

Historical data shows that in years when the S&P 500 index has risen between 5%-25% by the end of August, its market performance in September and October tends to be lackluster. The probability of recording positive returns in these two months is only about 50%, with an average return of 0.6% in September and just 0.1% in October.

2. Excessive Rebound

Compared to other low points since 2015, the intensity of the rebound since the April low has exceeded all years except for 2020.

3. Long-Term Lack of Corrections

The market has not experienced a significant correction for a long time. Since the initial volatility following the low point, the S&P 500 index has gone 93 days without a correction of 3% or more, matching the longest record since the low points in the fourth quarter of 2016 and 2023.

4. Overly Optimistic Retail Sentiment

According to social media posts tracked by JP Morgan, retail investor sentiment has become quite optimistic, nearing a one-year high. Overly optimistic sentiment can sometimes signal a market reversal.

5. Macro Events Materializing

The market has priced in a significant amount of expectations regarding Federal Reserve interest rate cuts, which means that the room for further easing pricing in the short term may be limited.

Long-Term Outlook Remains Optimistic

Despite the short-term risks, JP Morgan remains confident in the medium to long-term outlook for U.S. stocks and provides several reasons supporting further gains before the end of the year:

First, from a longer time perspective, seasonal factors actually become favorable. In years when the index has risen between 5%-25% by the end of August, there have been 42 instances (out of 47 years) where gains were recorded in the subsequent September to December period, with an average increase of 6.2%.**

Secondly, the bank's positioning model shows that investor positions in the U.S. market are beginning to break through a long-term downward trend, which indicates that there is further upside potential for positions and the S&P 500 index in the next one to two years.

In addition, within the Russell 3000 index, the number of stocks with short positions (accounting for 20%-30% of the float) remains close to multi-year highs, while the proportion of stocks with very low short positions is near a ten-year low, indicating that there is still persistent bearish sentiment in the market, which may drive the index higher during a short squeeze.

At the same time, historical experience shows that the stock market typically performs strongly within six months after the Federal Reserve initiates "preemptive" rate cuts. Finally, although there has been a recent rebound, the inflow of funds into U.S. stock ETFs is still not strong, but it usually shows a seasonal strengthening trend at the end of the year.

Consumers' Cash Reserves Are Abundant, Supporting Economic Resilience

JP Morgan believes that the resilience of the U.S. economy is an important cornerstone supporting its optimistic outlook, backed by record consumer cash reserves.

The report defines the funds in checking, savings, and money market fund accounts as "consumer cash reserves," which reached a record $21.8 trillion in the second quarter of 2025, significantly higher than $14.8 trillion in the fourth quarter of 2019.

Looking at income levels, all income groups except the bottom 20% have cash holdings adjusted for inflation that are 7% to 25% higher than in 2019. Notably, checking account balances surged from $1.53 trillion in the fourth quarter of 2019 to $5.42 trillion in the second quarter of 2025, which is typically viewed as funds for near-term consumption.

Abundant cash has driven consumption growth and helped the U.S. economy achieve an average annual real GDP growth of 2.9% from the third quarter of 2022 to the fourth quarter of 2024. Meanwhile, the total net worth of U.S. households reached a new high of $167.2 trillion in the second quarter of 2025, an increase of over 50% compared to the fourth quarter of 2019.

Based on its "tactically bullish" stance, JP Morgan's market intelligence team suggests that any market pullback should be viewed as a buying opportunity.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk