A month ago, this JPMorgan team urged caution on stocks. Now it's going all in on tech.

By Jules Rimmer

Data releases and third-quarter earnings growth to drive markets higher, says JPMorgan

Bond markets are in a better position from which to rally and September's weak seasonality is now behind us, argues JPMorgan

A JPMorgan unit that focuses on short-term trading signals has turned bullish again after a month of caution.

At the end of August, JPMorgan's market intelligence team turned neutral on stocks, citing a whole range of threats to performance. As September draws to a close, though, Andrew Tyler's team identifies a more favorable setup, and now is going tactically bullish as they anticipate more stable bond markets and the oil price trending lower.

JPMorgan's market-intelligence team focused on short-term, or what's called tactical, strategy, looking at daily sentiment, order flows and positioning, vs the more fundamental research the bank also provides.

A month ago, however, uppermost among Tyler's concerns were widening credit spreads, Fed uncertainty, heavy positioning, seasonality concerns and a worry about the AI momentum trade unwinding. To reflect the cautious stance, Tyler had recommended taking a long position in Nasdaq NDX and pairing it with a short in the Russell 2000 RUT index. In four weeks, that strategy delivered a 7.9% return.

On Monday, JPMorgan's desk note dispatched to clients provided several arguments in favour of turning more constructive in the short-term.

Chief among them is the fundamental strength of the macro drivers. Flash purchasing manager index surveys have come in hotter than expected. In fact, the last composite PMI showed the strongest growth, Covid excepted, since 2015. Tyler makes the point that the S&P 500 SPX earnings per share growth forecasts are tied to nominal GDP expansion. It follows then that earnings expectations may need to be adjusted higher.

Analyst EPS forecasts are closely tied to nominal GDP expectations

Moreover, the much-vaunted resilience of the American consumer shows no signs of diminishing. Spending continues to defy expectations and consumers still demonstrate an ability to navigate higher inflation and interest rates.

As for earnings, the JPMorgan team say the 29% year-on-year gain analyst expectation for third-quarter earnings may yet prove conservative. Even if analysts are correct, it would be the third consecutive quarter of 10%+ revenue growth and 25%+ earnings growth. Those are impressive metrics by anyone's standards.

Global rate strategist Jay Barry predicts that U.S. 10-year yields BX:TMUBMUSD10Y will fall back from here and pencils in a level of 5.05%, 20 basis points below current levels, by year-end.

In the very short-term, Tyler thinks inflation and payrolls data due this week may reinforce sentiment, especially if a jobs number like August's buttresses the growth story. The sector on which Tyler is most bullish is tech and he thinks the release of Meta's (META) Muse and OpenAI's developer day this week may prove useful catalysts for the stocks in this space. Within tech, says sees semiconductor plays SOX and Mag7 MAGS will outperform as he advocates continuing to own AI plays.

-Jules Rimmer

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09-29-26 0457ET