JPMorgan Chase fell 3.3% intraday Wednesday after a Fed official warned rate hikes "could be warranted," even as the bank's own strategist called the selloff overdone.
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JPMorgan slides 3.3% as rate hike fears batter bank stocks
JPMorgan Chase & Co. fell 3.3% intraday Wednesday after Minneapolis Fed President Neel Kashkari said rate hikes "could be warranted" if Middle East conflict persists, battering bank stocks and overshadowing the firm's own call that the fears are overdone.
"The next rate change could be either a cut or a hike," Kashkari told Nikkei, adding that a series of increases "could be warranted" if the Strait of Hormuz closure affects long-term inflation expectations in households and businesses.
The decline pushed JPMorgan toward session lows and dragged the broader financial sector lower. The 10-year Treasury yield fell 7 basis points to 4.49 percent, its lowest in four sessions, as traders pared near-term Fed hike bets. Markets currently price one Fed hike by March 2027 and two ECB hikes by year-end, according to overnight index swaps. Brent crude has traded above $100 a barrel during the crisis, adding to inflation concerns that have made bank stocks particularly sensitive to rate expectations.
JPMorgan's equity strategist Mislav Matejka pushed back against the rate-hike narrative, arguing the Iran conflict does not repeat the 2022 inflation playbook. He sees bond yields and oil prices lower in six to 12 months, with weaker US employment and wage growth making a stagflationary spiral less likely. The call opens up a contrarian opportunity in beaten-up low-volatility names including banks, utilities and insurers, according to the strategist.
Treasury Curve Flattens as Hawkish Rhetoric Mounts
The selloff comes as the Treasury curve flattened to its tightest in a year, with the 5s30s spread narrowing to 81 basis points. The move reflects a short-end selloff driven by traders pricing in a higher-for-later Fed under new Chair Kevin Warsh. Fed Governor Christopher Waller — previously a dove — said last week the next move is now just as likely to be a hike as a cut, while Kashkari's comments Wednesday reinforced that shift.
ING, Goldman Sachs and Barclays have flagged that elevated long-end yields may not fully unwind even if oil-driven inflation eases, given public debt burdens and AI capex demands. The last time the curve reached this level was May 2025, preceding a period of sustained equity market volatility. For rate-sensitive bank stocks, a persistently flat curve compresses net interest margins by reducing the spread between short-term borrowing costs and long-term lending rates.
Tech Surges as Financials Diverge
JPMorgan's decline contrasted with a broader market that saw the S&P 500 and Nasdaq notch record closes, driven by a 19 percent surge in Micron Technology after UBS tripled its price target to $1,625. The divergence between megacap tech and rate-sensitive financials highlights the narrow breadth of the current rally. The Goldman Sachs basket tracking US cyclicals over defensives trades at levels last seen 18 years ago, according to JPMorgan.
The divergence also reflects a growing divide in earnings momentum. While AI-driven semiconductor companies have benefited from surging demand, bank stocks face headwinds from an uncertain rate path and potential credit deterioration if the economy slows. For JPMorgan, the selloff compounds year-to-date pressure on bank stocks as the rate outlook remains uncertain. The bank's own analysis suggests that if the Iran conflict de-escalates and rate fears fade, financials could be among the primary beneficiaries of a rotation back into value and low-volatility sectors.
This article is for informational purposes only and does not constitute investment advice.
