NextFin News - JPMorgan Chase's trading desk has flipped its view on US equities to bullish from tactically neutral, betting that stronger economic data and resilient corporate earnings will keep the market's 2026 boom intact through Friday's closely watched jobs report. The reversal, led by Andrew Tyler, head of US market intelligence, comes just five weeks after the same desk turned cautious on the back of a hawkish Federal Reserve, and with the S&P 500 sitting on its 27th record close of the year.
The timing is the story. The desk's upgrade lands between a 162,000-job August payroll surprise that crushed the roughly 55,000 consensus and a September employment report that economists expect to show another 120,000 gain. It is a wager that the labor market is strong enough to support earnings but not so hot that it hands the Federal Reserve a reason to tighten further - the narrowest path a bull market can walk.
The Flip: What Changed in Five Weeks
In late August, JPMorgan's traders moved the other way. After Federal Reserve Chair Kevin Warsh's hawkish Jackson Hole speech, the desk shifted from bullish to "tactically cautious," warning that near-term variables would likely send indexes chopping sideways even as fundamentals stayed sound. "Equity bull markets tend to end with either a hiking cycle or a recession," Tyler wrote at the time, flagging the Fed's September 16 meeting as a "live" risk. The desk pointed to cooling momentum among high-valuation artificial-intelligence stocks, rising energy prices after recent US-Iran military strikes, and pressure on rate-sensitive utilities and defensive sectors.
The Fed did hike. On September 16, the Federal Open Market Committee raised the federal funds target range by 25 basis points to 3.75%-4.00% in a unanimous 12-0 vote, the first rate increase since July 2023. The accompanying Summary of Economic Projections showed the median policymaker still expecting one more quarter-point hike in 2026, with core personal-consumption-expenditures inflation seen at 3.4% and the unemployment rate holding at 4.1%.
Yet the market absorbed the move without breaking. The S&P 500 closed at 7,798.99 on Thursday, marking its 27th all-time high of 2026 and lifting the index 13.4% year-to-date. Bond yields, which had been the stated trigger for the cautious call, showed signs of stabilizing. Consumer spending held firm. And corporate profit growth, led by a second consecutive quarter of S&P 500 earnings rising more than 25% year over year, refused to roll over.
So the desk flipped back. Stronger-than-expected economic activity, consumer resilience, robust profit growth, and stabilizing yields were the four reasons cited for dropping the cautious stance. The message: the policy shock was a cyclical interruption, not a regime change.
There is also a credibility dimension. JPMorgan's US market-intelligence team has built a following for the accuracy of its tactical calls, and a quick reversal after being proven wrong on timing is itself a signal. The desk is not wedded to a house view; it is trading the path. That flexibility is what makes the flip worth attention rather than dismissal.
Why the Jobs Report Is the Pivot Point
Friday's employment report is the first major test of that call. August's 162,000 payroll gain - nearly triple the 55,000 economists expected - already reset the narrative from "the labor market is cracking" to "hiring is broadening." The three-month moving average of payroll growth climbed to 71,000 from 38,000 in June, and the prior two months were revised up by a combined 55,000, erasing July's reported decline entirely. Private payrolls rose 127,000, with education and health adding 29,000 jobs and construction another 22,000, partly reflecting the AI-related infrastructure buildout. The payroll diffusion index rose to 55.6, indicating hiring has broadened compared with last year.
Wages are the second variable, and they delivered the market's favorite combination: strong hiring with contained pay growth. Average hourly earnings rose just 0.1% in August, leaving the year-over-year pace at 3.2%, a five-year low. That is the sweet spot the market wants: enough hiring to confirm demand, slow enough wage growth to keep the Fed's inflation fight from spilling into a second hiking cycle.
For September, forecasts cluster around 120,000 new jobs, with the unemployment rate expected to hold near 4.1%. Independent high-frequency signals lean constructive: Indeed's job-postings index reached 103.5 as of September 18, its highest level since late March and about 3% above the pre-pandemic baseline, while year-over-year postings growth turned positive at 0.7% for the first time in nearly four years. Weekly jobless claims have stayed contained, and the total layoff pace in 2026 is the slowest in four years, according to outplacement firm Challenger, Gray & Christmas.
"We are moving to a tactically cautious / neutral view, which is to say that equity-market fundamentals remain strong, but that near-term variables are likely to cause markets to chop sideways," Tyler wrote in August - a framing that now cuts the other way, with near-term variables pointing up instead of down.
The Second-Order Read: This Is a Bet on the Fed's Reaction Function
The obvious interpretation of JPMorgan's flip is that fundamentals improved. The more important one is that the desk is making a call on the Federal Reserve's reaction function - and on what the market has already priced.
After the September hike, the Fed's own dot plot settled on one more 25-basis-point move before year-end, and rate markets have largely converged on that path. That trajectory is already embedded in valuations. What is not fully priced is whether that final hike will be preventive - a normalization move taken while growth holds - or reactive, forced by re-accelerating inflation. JPMorgan's upgrade is effectively a bet on the former: that the labor market prints in the 100,000-to-150,000 range, wage growth stays contained, and the December meeting becomes a formality rather than a fight.
That distinction matters because the transmission channel runs through the discount rate and the earnings multiple, not through earnings themselves. A preventive final hike leaves the earnings story intact and lets multiple expansion resume. A reactive hike, by contrast, signals that inflation is winning; yields back up, the equity risk premium widens, and even strong profits get re-rated lower. The same strong jobs number is good news under the first reading and bad news under the second. This is the oldest asymmetry in macro trading: good news is good news only until it is too good.
The valuation backdrop explains why the asymmetry matters now. The S&P 500 was trading at a trailing price-to-earnings ratio of 24.82 on September 25, above its five-year average of 23.55 and well above its 10-year average of 20.45. Multiples are not cheap, which means the market is pricing a soft landing with considerable confidence. There is little room for the discount rate to rise without compressing the multiple that has carried a large share of this rally.
This is also a positioning call as much as a fundamentals call. A desk that turned cautious in late August and bullish in late September is, in effect, trading the whipsaw. The market's 27th record high and 13.4% year-to-date gain mean the risk-reward of chasing strength is not what it was in June. JPMorgan is not saying the bull market has years to run; it is saying the tactical path of least resistance over the coming weeks points up. That is a narrower claim than the headline suggests, and it matters: tactical bullishness can be right and still end in a drawdown.
The Counter-Thesis: Late-Cycle Euphoria, Not a Fresh Signal
The strongest argument against the upgrade is that it arrives late. A tactical flip from cautious to bullish after a 13.4% rally, 27 record highs, and a Fed that still sees another hike is the kind of consensus crowding that marks cycle tops more often than it marks fresh breakouts. The desk's own August warning still holds weight: bull markets end with hiking cycles, and the hiking cycle is not over. History is unkind to bullish upgrades that cluster at new highs after a long advance.
Earnings concentration adds to the concern. The 52% year-over-year earnings growth rate for the S&P 500 is being boosted by one-time investment gains at Amazon and Alphabet; excluding those two, the figure is closer to 34%. That is still strong, but it is a reminder that the headline number is flattered by accounting effects rather than operating leverage alone. Meanwhile, nine of 11 sectors are seeing margin growth, and the current expansion is being carried heavily by AI-related capital spending and a consumer buoyed by wealth effects from higher equity and property values. If AI spending fails to convert into productivity and revenue, or if the wealth effect reverses on a market pullback, the earnings engine loses two of its cylinders at once.
There is also the question of what a hot print would do. If September payrolls come in above 150,000 and wage growth re-accelerates above 0.4% month over month, the market would have to price a second 2026 hike with more conviction. The 10-year Treasury yield would push higher, the dollar would strengthen, and the multiple that this rally has been built on would compress. In that scenario, the very data JPMorgan is betting on - a strong labor market - becomes the mechanism of the drawdown.
That is the falsifying signal. JPMorgan's bullish call depends on a Goldilocks labor market: hiring that confirms growth without reviving inflation. A print that is too strong breaks the call just as surely as one that is too weak. The window between the two is narrow, and it is exactly where Friday's data will land. Watch average hourly earnings month over month above 0.4% combined with payrolls above 150,000 - that combination would invalidate the thesis within a single release.
Positioning and the Whipsaw Trade
The flip is worth reading as a positioning indicator in its own right. JPMorgan's desk is widely followed by institutional investors, and its calls tend to move flows. A shift from neutral to bullish into a major data release can encourage risk-on positioning among clients who were sitting on the sidelines. That flow can amplify the upside if the print lands in the Goldilocks zone - but it can also accelerate the exit if it does not.
The options market tells a similar story of complacency priced in. With the S&P 500 at record highs and volatility subdued, the cost of downside protection has been cheap for much of the year, suggesting investors have been willing to buy insurance but not to reduce exposure. That is a stable configuration until it is not: when everyone is long with cheap hedges, a shock that forces hedge-unwinding can produce a faster move than fundamentals alone would justify.
The sector map reinforces the tactical nature of the call. The August caution centered on AI momentum cooling, energy prices rising, and rate-sensitive defensives under pressure. The upgrade implies those pressures have eased or been absorbed. If the jobs report confirms contained wage growth, rate-sensitive sectors - utilities, real estate, and the long-duration growth names - could rejoin the rally. If it does not, they are the first to roll over again.
What to Watch: Three Horizons
Short term (days to weeks): Friday's September nonfarm payrolls, the unemployment rate, and average hourly earnings. A print between 100,000 and 150,000 with wages near 0.2%-0.3% monthly would validate the bullish flip and likely extend the rally into October. Anything above 150,000 with accelerating wages flips the script toward rate risk. A print below 50,000 would revive recession fears and undercut the earnings premise.
Medium term (one to two quarters): The December FOMC meeting and the trajectory of core PCE inflation, currently projected at 3.4%. If the Fed delivers its projected final hike and inflation continues descending toward the 2.5% core forecast for 2027, the earnings-driven bull case survives. If officials signal a third hike, or if core inflation stalls above 3%, the tactical bullish call expires. Q3 earnings season, beginning in mid-October, will show whether the 29.1% estimated growth rate for the index holds up or rolls over as margins peak.
Long term (structural): Whether earnings growth is broad-based or concentrated. The current expansion is being carried by AI-related capital spending, margin expansion across nine of 11 sectors, and a consumer buoyed by wealth effects from higher equity and property values. If those drivers prove durable, this is a structural earnings boom with cyclical pauses. If AI spending fails to convert into productivity and revenue, the boom is cyclical and mean-reverting - and today's record highs are the top, not the middle.
The base case is a soft-landing continuation: payrolls around 120,000, steady unemployment, contained wages, and a December hike that the market absorbs as preventive. The upside case is a faster disinflation that lets the Fed pause sooner, unleashing multiple expansion. The downside case is a hot print that forces the Fed's hand and revives the August caution, or a weak print that revives recession fears.
JPMorgan's traders are not calling a new bull market. They are calling a tactical window - and Friday's jobs report will decide whether it opens or closes. The market has priced a soft landing; what it has not priced is how narrow the path remains. That is the bet, and it will be settled in a single data release.
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