The market is eager for interest rate cuts, but investors should be careful what they wish for. Lower rates are typically seen as bullish for stocks. But JPMorgan is warning that the upcoming Federal Reserve decision could actually spark a selloff. Traders have already sent markets higher in anticipation of easier policy. If a cut is announced on September 17, it could trigger a “sell the news” event. Traders may sell stocks after the news because the good outcome was already expected and priced in. That makes now the time to brace your portfolio before the Fed acts.
Stocks have climbed all year on the expectation of easier monetary policy. Last month, Fed Chairman Jerome Powell remarked that a cut could be justified. Since then, the S&P 500 has gained nearly 2%, adding to a more than 10% gain for the year. Traders expect three rate cuts in 2025, starting with a 25-basis point move this month and more to follow in 2026.
But JPMorgan’s trading desk has cautioned that these expectations may already be priced in. When markets anticipate a policy shift, there is little room left for upside. Instead, the actual announcement can trigger a pullback as traders take profits. Notably, inflation is still running above target and employment data is sending mixed signals. The upcoming cut may highlight weaknesses instead of fueling growth.
