• JPMorgan (JPM) expects the Fed to hold rates, but with a hawkish tilt that could leave the S&P 500 flat to down 0.5%.
  • A surprise 25bp hike would hit stocks hardest, with tech shares particularly vulnerable to a 1.5%-2% decline.
  • Markets are pricing a non-trivial chance of a rate increase, though the base case remains a hold.

As the Federal Reserve prepares to announce its latest policy decision, JPMorgan's trading desk has laid out a market playbook centered on a likely hawkish hold. The Wall Street bank assigns a 50% probability to this scenario, in which the Fed leaves rates unchanged but signals continued vigilance against inflation. Under that outcome, the S&P 500 would trade roughly flat to down 0.5%, according to the note, which was seen by Bloomberg News.

A more dovish hold—where the Fed acknowledges easing price pressures or hints at future cuts—could lift equities by as much as 1%. But JPMorgan sees that as less likely, given recent data showing persistent inflation and a resilient labor market. The real shock would come if the Fed delivers a 25-basis-point hike, a move that markets have priced as a distinct possibility. In that case, the S&P 500 could fall 1.5%-2%, with growth-oriented tech stocks likely bearing the brunt.

“The market is hyper-focused on the tone of the statement and Chair Powell’s press conference,” a JPMorgan strategist said, speaking on condition of anonymity because the note is private. “Any signal that the Fed is leaning toward another hike would cause an immediate repricing.”

The analysis comes as traders brace for what could be one of the most consequential Fed meetings in months. While the consensus expects no change in the federal funds rate, the probability of a hike implied by futures has swung wildly in recent weeks, touching as high as 20% after a stronger-than-expected inflation report. JPMorgan’s base case suggests the central bank will use this meeting to keep its options open, reinforcing the "higher for longer" narrative that has weighed on risk assets all year.

For equities, the key variable is the Fed's forward guidance. Even a hold could disappoint if the statement fails to lay the groundwork for eventual easing. “The worst outcome for stocks would be a hawkish hold paired with upward revisions to the rate path,” the strategist added.

JPMorgan’s note also highlights the vulnerability of tech stocks, which have rallied this year on hopes of a soft landing. A surprise hike would puncture those hopes, sending the sector down sharply. Alternatively, a dovish hold could reignite the rally, particularly in mega-cap names that have led the charge.

The Fed decision and the accompanying projections are due at 2 p.m. Eastern, followed by Chair Jerome Powell’s press conference 30 minutes later.

(Updates with market context and analyst commentary.)