JPMorgan sees last big Fed rate hike in September

The U.S. Federal Reserve is likely to make its last major rate hike in September, paving the way for stocks to continue their rally in the second half, analysts at JPMorgan Chase said.

“We expect another giant Fed hike in September, but after that we see the Fed not surprising markets again, on the hawkish side,” U.S. bank strategists led by Mislav Matejka wrote in a note today.

They expect the “balance” between growth and monetary policy to improve from now on, “overall helping the market continue to recover.”

It’s worth noting that JPMorgan analysts are among the (few) staunch supporters of the US market’s bullishness and expect growth stocks – the most sensitive to interest rates – to continue to outperform value stocks, although investors remain concerned that the Fed may remain on an aggressive path.

After all, mixed messages on interest rates from Fed officials last week led the S&P 500 to snap a four-week winning streak.

In a Bloomberg survey, however, top strategists see the U.S. stock market’s main index rising 3.5% from current levels by the end of the year.

Those at Goldman Sachs agree that inflation and growth will support stocks in the second half, albeit with narrow margins after Wall Street experienced one of its best summer rallies on record.

“Renewed fears about the prospect of a recession are almost certain to limit the recent rally,” Gioldman’s David J. Kostin wrote in a note to clients.

Elsewhere, all eyes will be on the Fed’s conference this week in Jackson Hole, Wyoming, where Fed President Jerome Powell will have a chance to give the market some direction on rate hikes.

It is recalled that growth stocks, such as those in technology in particular, are under more intense pressure from higher interest rates, as they weigh on their future earnings outlook and compress their valuations, while on the contrary they work favorably towards the so-called value stocks.

In that climate, after all, the tech-weighted Nasdaq 100, which had rallied more than 20% from June lows as bond yields fell and investors bet the Fed would slow its rate hikes, moved down again last week snapping a four-week bull run.

For his part, Mark Haefele of UBS Global Wealth Management today warned investors against chasing a recovery in stocks as valuations become expensive again.