Investors should remain watchful as the summer comes to a close, according to JPMorgan. The stock market continues to price in a “Goldilocks scenario,” even after last week’s data, the firm said. The major averages finished last week on a high note , after the latest inflation data suggested higher pricing pressures in some parts of the economy that nevertheless weren’t so severe as to take a September rate cut off the table. The consumer price index came in line with expectations, while the producer prices report came in much hotter than expected. The market continues to trouble many on Wall Street, however. On Friday, Fabio Bassi, head of cross-asset strategy at JPMorgan, told investors to brace themselves for incoming volatility, especially if macroeconomic data continues to come in weaker than expected. “The Goldilocks narrative remains the broad consensus on the back of the ‘Fed put’, stable jobless claims, strong earnings and the AI theme. Investors are questioning the catalysts for a correction in risk assets, when the Fed is ‘coming to the rescue’ and the outlook in 2026 looks rosier,” Bassi wrote in a note titled “Estote Parati: Calm Markets Can Precede Volatility.” “Estote parati” is a Latin phrase that translates to “be prepared.” “However, investors should not be complacent,” he wrote. “Bad macro news so far has been perceived as good news for risk assets given shallow and temporary weakness cushioned by the ‘Fed put’; however, bad news could turn truly detrimental if macro weakness appears large or persistent.” Bassi said he does not hold a recession in his base case, but he nevertheless worries that downside risk has grown, especially after the market’s major runup this year. Many market observers point out that the S & P 500, which is currently trading at a 12-month forward multiple of 22, is priced for perfection and could be due for a pullback. Bassi expects a 5% to 10% pullback is in the cards, which would knock the S & P 500 back down to about 5,800 or 6,000, from around 6,450 where it was last. “In the short term, we expect growth risks to come to the forefront for investors, as the impact of tariffs gets reflected in prices and consumer spending, amid a retracement for the large frontloading of the first half of the year,” Bassi wrote. Still, the sell-off could come just in time to prove a buying opportunity for a year-end rally, Bassi said. He expects that any weakening in the macroeconomic data will be limited in scope, especially if the Federal Reserve does indeed step in to provide relief. Until then, he expects investors should remain hedged. Among other moves, the firm is sticking to an overweight on utilities and staples, two defensive sectors.
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