JPMorgan Breaks Down Five Fed Decision Outcomes: What’s Next for US Stocks?  

The Federal Reserve begins its two-day policy meeting today, with the market widely expecting the Fed to restart its rate-cut cycle after a nine-month hiatus. However, what truly concerns investors may be the magnitude of the monetary policy easing the Fed will adopt.  

 

According to the CME FedWatch tool, traders currently price a 96% probability of a 25-basis-point cut and only a 4% chance of a 50-basis-point cut. While a rate cut seems all but certain, market reactions will hinge on the specific policy signals the Fed releases.  

 

If the Fed pairs the rate cut with a more dovish outlook on interest rates, US stocks could rise; conversely, if it curbs expectations for further cuts alongside the reduction, the S&P 500 may face pressure.  

 

In this regard, JPMorgan’s trading desk has outlined five scenarios for the Fed’s decision day, along with their probabilities and potential market impacts:  

 

47.5% Probability: Dovish 25-Basis-Point Cut — S&P 500 to rise 0.5%-1%  

 

JPMorgan traders note that if the Fed views inflation as transitory and believes the labor market has yet to significantly impact the economy, there could be room for further rate cuts.  

 

40% Probability: Hawkish 25-Basis-Point Cut — S&P 500 to hold flat or fall 0.5%  

 

JPMorgan points out that recent Fed statements suggest greater focus on labor market issues than inflation. With recent data (small business surveys, Indeed job postings, etc.) indicating a pickup in hiring activity, Powell might adopt a more hawkish stance than anticipated.  

 

7.5% Probability: 50-Basis-Point Cut — This scenario could lead to the widest market volatility, with traders expecting the S&P 500 to drop 1.5% or rise 1.5%.  

 

JPMorgan indicates that if the Fed signals deeper concerns about the labor market than previously, US stocks could decline. However, if the Fed acknowledges the need to align with the economic reality of a faltering labor market, it could lift markets.  

 

4% Probability: No Change in Rates — S&P 500 to fall 1%-2%  

 

Current market consensus deems it highly unlikely the Fed will maintain the current 4.25%-4.5% rate range. However, JPMorgan’s trading desk warns that if this occurs, the S&P 500 could drop 1%-2%.  

 

1% Probability: Rate Hike — S&P 500 to fall 2%-4%  

 

A 1% probability suggests this scenario is nearly impossible. JPMorgan traders say this completely unexpected outcome would trigger a massive stock sell-off. “With core CPI rising for three consecutive months, this could prompt the Fed to pause, though CPI data hasn’t yet reached a level posing a credible threat.”