JPMorgan: Before the U.S. stock market pushes toward 7,000 points by year-end, it faces five major short-term downside risks.

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J.P. Morgan has released its latest outlook, stating that although the S&P 500 Index could challenge the 7,000-point mark by year-end, investors should be wary of a series of downside risks that may lead to short-term market pullbacks before enjoying this potential rally.

Recently, J.P. Morgan’s Market Intel team noted in its report that U.S. stocks may experience a moderate further decline next week, but will then enter “gametime,” with the potential to accelerate towards 7,000 points before November.

Analyst Jonathan Schlegel pointed out that concerns over seasonal weakness, the magnitude of the market rebound, the prolonged absence of a correction, overheated retail sentiment, and the market already pricing in the Fed’s easing expectations, could all contribute to short-term downward pressure.

However, the report added that from now until year-end, the likelihood of further gains in U.S. stocks remains higher than that of a decline. The team maintains its “tactically bullish” view and suggests investors should buy any dips that occur before year-end.

Five Major Short-term Downside Risks

J.P. Morgan’s team listed five key risks that could trigger short-term market pullbacks and require close investor attention:

1. Seasonal factors

Historical data shows that in years when the S&P 500 rose 5-25% by the end of August, its performance in September and October was often flat. The probability of positive returns in these two months is only about 50%, with an average return of 0.6% in September and just 0.1% in October.

2. Magnitude of the rebound

Compared with previous low points in positioning since 2015, the rally from the April lows this year has surpassed all years except 2020 in terms of strength.

3. Lack of correction for an extended period

The market has not experienced a significant correction for a long time. After initial volatility at the positioning low, the S&P 500 has gone 93 days without a pullback of 3% or more, tying the longest streaks after the troughs in Q4 2016 and Q4 2023.

4. Overheated retail sentiment

According to social media posts tracked by J.P. Morgan, retail investor sentiment is quite optimistic, nearing the highest point in a year. Overheated sentiment can sometimes be a signal for a market reversal.

5. Macroeconomic events being priced in

The market has already priced in much of the expectation for Fed rate cuts, meaning the room for further near-term easing is likely limited.

Long-term Perspective Remains Optimistic

Despite short-term risks, J.P. Morgan remains confident in the medium- and long-term prospects for U.S. stocks and gives several reasons supporting further gains by year-end:

First, from a longer-term perspective, seasonal factors are actually favorable. In years when the S&P 500 rose 5-25% by the end of August, there were 42 instances (out of 47 years) when the market rose from September to December, with an average gain of 6.2%.

Second, their positioning model shows that investor positioning in the U.S. market is beginning to break out of a long-term downtrend, suggesting further upside potential for positions and the S&P 500 over the next one to two years.

In addition, within the Russell 3000 Index, the number of stocks with high short interest (20%-30% of shares outstanding) remains near multi-year highs, while the proportion of stocks with extremely low short interest is near decade lows, indicating persistent bearishness in the market, which could contribute to a short squeeze and further push up indexes.

At the same time, history shows that within six months after the Fed starts “pre-emptive” rate cuts, the stock market usually performs strongly. Finally, despite recent rallies, inflows into U.S. equity ETFs are still not strong, but they typically display seasonal strength towards year-end.

Ample Consumer Cash Reserves Support Economic Resilience

J.P. Morgan believes the resilience of the U.S. economy is a key pillar of its optimistic view, underpinned by record-high consumer cash reserves.

The report defines funds in checking, savings, and money market fund accounts as “consumer cash reserves,” which are projected to reach a record $21.8 trillion in Q2 2025, far above the $14.8 trillion in Q4 2019.

By income level, except for the bottom 20% of earners, all other groups’ inflation-adjusted cash holdings are 7% to 25% higher than in 2019. Notably, checking account balances surged from $1.53 trillion in Q4 2019 to $5.42 trillion in Q2 2025—funds typically seen as available for near-term consumption.

Abundant cash has fueled consumption growth and helped the U.S. economy achieve an average annual real GDP growth of 2.9% from Q3 2022 to Q4 2024. Meanwhile, U.S. household net worth reached a new high of $167.2 trillion in Q2 2025, up more than 50% from Q4 2019.

Based on its “tactically bullish” position, the J.P. Morgan Market Intelligence team recommends treating any market pullbacks as buying opportunities.

Risk DisclaimerThe market involves risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment decisions made based on this article are at the user's own risk. ```