Suddenly Wall Street is getting a bit nervous. Here are two ways to prepare for turbulence.

By Steve Goldstein

JPMorgan and Citadel Securities advise investors to take a cautious stance

Maybe it's time to add caution to our portfolios, leading strategists say.

Maybe the expression should be "sell in June and go away." The S&P 500 SPX has meandered through a dud over the past three months, rising just over 1%. As summer winds down, there's a new air of nervousness emerging on Wall Street.

Strategists at Citadel Securities and JPMorgan are both saying they have turned temporarily cautious, though neither is calling the bull market over.

JPMorgan's market-intelligence team, led by Andrew Tyler, said Monday that it was moving to a "tactically cautious/neutral view." Scott Rubner, Citadel Securities' head of equity and equity derivatives strategy, said the "near-term asymmetry has shifted."

Both flagged - as others have done - the historically rough month of September, particularly ahead of midterm elections in the U.S. But the wariness extends beyond the calendar.

Tyler and team noted that equity bull markets tend to end with either a hiking cycle or a recession. The latter possibility seems comfortably remote, but after Kevin Warsh's speech last week in Jackson Hole an interest-rate hike this month is not only a possibility but further rate increases may also be in store.

Other factors include positioning that lacks a clean read on market direction, a likely increase in credit issuance after Labor Day, the unwinding of momentum, and the possibility that chip and artificial-intelligence plays fail to move after chip giant Broadcom's (AVGO) results this week, according to the JPMorgan memo.

Rubner, meanwhile, took note of the lull in the earnings-report calendar, the typically restrained activity by retail investors during September and the pre-earnings blackout period that will block corporate share buybacks.

The top 100 pension funds are 112% funded, their highest levels since 2001, which will encourage them to "de-glide and immunize" their portfolios by selling some stocks and buying bonds into the end of the quarter, Rubner wrote. Another reset possibility will come with $9.6 trillion of U.S. options currently set to expire between now and Sept. 18 - including options contracts worth $6.2 trillion on Sept. 18 alone.

Rubner said downside protection is inexpensive, calculating that demand for market protection is in the bottom first percentile of the entire year. An S&P 500 put expiring in a month set about 3% below the current market price fell on Friday to its cheapest level since December 2024. Besides buying protection on stocks via puts, Rubner points to bonds as prospectively providing better opportunity than equities at the moment.

The JPMorgan playbook is slightly different, expressed through sector and style rotations. The market-intelligence team there likes going long the Nasdaq-100 and short the Russell 2000 and prefers the "Magnificent Seven" MAGS and software IGV over semiconductor SOXX and memory DRAM stocks. It pointed to large-cap banks given the economic-growth story and to the consumer-discretionary sector XLY if energy prices move lower. Healthcare stocks tend to be the best-performing defensive sector heading into the midterms, the team added. The strategists have their own hedge recommendations, as well - which would be to sell credit exchange-traded funds short and buy equity volatility products.

The market

S&P 500 futures (ES00) (NQ00) turned lower early Tuesday as oil prices (CL00) and bond yields BX:TMUBMUSD10Y rose, notably in Japan, where the 10-year BX:TMBMKJP-10Y crossed 3% for the first time in decades.

 
Key asset performance                                                Last       5d      1m      YTD     1y 
S&P 500                                                              7686.14    0.43%   1.13%   12.28%  18.98% 
Nasdaq composite                                                     26,370.89  1.50%   1.76%   13.46%  22.91% 
10-year Treasury                                                     4.792      15.80   17.30   62.00   52.90 
Gold                                                                 4415.3     -6.37%  6.80%   1.92%   22.66% 
Oil                                                                  87.92      8.40%   17.01%  53.14%  33.98% 
Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Two oil supertankers were reportedly hit by projectiles in the Strait of Hormuz.

Chinese fast-fashion retailer Shein suffered through a rocky post-IPO debut.

Tuesday's U.S. economic calendar includes the Institute for Supply Management manufacturing index and job-openings data.

Robinhood Markets stock (HOOD) rose on a Morgan Stanley upgrade.

Earnings are due after the close from Palo Alto Networks (PANW), Dell Technologies (DELL) and MongoDB (MDB).

Party balloons could become a luxury as the Iran war spurs a helium shortage.

The chart

Robin Brooks, a former Goldman Sachs currency strategist and current fellow at the Brookings Institution, plotted the weighted average of U.S. data surprises versus the 10-year U.S. Treasury yield. He noted that the data would point to weaker yields, not higher. "Weak data should weigh on 10-year yield as markets revise their expectations down for inflation and growth, but the opposite has been true. The 10-year yield (TY00) is up, even as data surprises have been negative. That's a sign that market demand for U.S. Treasury debt is weaker than first meets the eye, Brooks said.

Top tickers

Here were the most active stock-market ticker symbols as of 6 a.m. Eastern time.

 
Ticker symbol  Security name 
NVDA           Nvidia 
TSLA           Tesla 
SPCX           SpaceX 
MU             Micron Technology 
GPRO           GoPro 
AMZN           Amazon.com 
AAPL           Apple 
TSM            Taiwan Semiconductor Manufacturing Co. 
AMD            Advanced Micro Devices 
MSFT           Microsoft 

-Steve Goldstein

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(END) Dow Jones Newswires

09-01-26 0853ET