Strategists at JPMorgan and Citadel Securities have both turned temporarily cautious on the S&P 500 after a sluggish summer, though neither is calling the bull market over. Their teams point to a historically weak September, options expirations worth trillions of dollars, and pension-fund rebalancing as reasons to hedge, while recommending different ways to position for turbulence.
Two Wall Street desks flag caution
The S&P 500 has risen just over 1% over the past three months, a sluggish summer that has left strategists uneasy as the season turns. JPMorgan's market-intelligence team, led by Andrew Tyler, said Monday 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 desks flagged the historically rough month of September, particularly ahead of U.S. midterm elections. But the wariness extends beyond the calendar. Tyler's team noted that equity bull markets tend to end with either a hiking cycle or a recession, and while a recession still looks comfortably remote, a rate hike this month has become a real possibility.
Options expirations and pension rebalancing add pressure
Rubner pointed to a lull in the earnings calendar, restrained retail-investor activity typical of September, and a pre-earnings blackout period that will block corporate share buybacks. He also noted that the top 100 pension funds are 112% funded, their highest level since 2001, which will encourage them to sell stocks and buy bonds into quarter-end.
A separate reset could come from $9.6 trillion of U.S. options set to expire between now and Sept. 18, including contracts worth $6.2 trillion on that date alone. Rubner said demand for market protection is currently in the bottom first percentile of the entire year, and an S&P 500 put expiring in a month set about 3% below the market price fell Friday to its cheapest level since December 2024.
Two different playbooks for hedging
Rubner's approach centers on buying downside protection through puts, and he also points to bonds as prospectively offering better opportunity than equities right now. JPMorgan's playbook instead runs through sector and style rotation: the team likes going long the Nasdaq-100 and short the Russell 2000, and prefers the Magnificent Seven and software stocks over semiconductor and memory names.
The bank's team also favors large-cap banks given the economic-growth story, and consumer-discretionary stocks if energy prices move lower. It added that healthcare stocks tend to be the best-performing defensive sector heading into midterm elections. JPMorgan's own hedge recommendation is to sell credit exchange-traded funds short and buy equity volatility products.
Source: MarketWatch
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