- JPMorgan's trading desk assigns a 50% probability to a hawkish hold, which could leave the S&P 500 flat to down 0.5%.
- A dovish hold (28% chance) is the most bullish outcome, with the index potentially rising up to 1%.
- A 25bp hike (20% chance) could trigger a 1.5%-2% selloff, with the Nasdaq likely underperforming.
As the Federal Reserve prepares for its next policy decision, JPMorgan's trading desk has released a scenario analysis outlining potential market reactions. The base case, with a 50% probability, is a hawkish hold—where the Fed keeps rates unchanged but signals a tighter stance. This would likely leave the S&P 500 roughly flat to down 0.5%.
A dovish hold, assigned a 28% chance, is seen as the most bullish scenario, potentially lifting the S&P 500 up to 1%. Investors would interpret a softer tone as a green light for risk assets. On the other end, a 25bp hike, with a 20% probability, could send the S&P 500 down 1.5%-2%, with the Nasdaq—sensitive to higher rates—underperforming.
The scenarios highlight that market direction will hinge more on the Fed's communicated stance than the rate decision itself. According to people familiar with the matter, JPMorgan's strategists emphasize that the accompanying press conference and dot plot will be key.
This playbook comes amid ongoing uncertainty over inflation and labor market strength. Short-term volatility is expected, with investors eyeing any shift in tone for clues on the path ahead. JPMorgan declined to comment beyond the published scenario analysis.