JPMorgan Lists Seven Indicators Warning of Q4 Market Moves: Leverage and Positioning "Excess" Return to US Stocks, Names Margin Accounts as the Biggest Vulnerability

Two months ago, JPMorgan still believed that the deleveraging in US stocks had cleared out the previous excess. Now, it has taken back half of that statement. In its "Flows & Liquidity" weekly report released on September 30, the bank's global markets strategy team said that the "excess" in some leverage and equity positioning indicators has returned to the market and could become a headwind for the stock market in the fourth quarterthe main title of the report is "Equity Market Fragility." Strategist Nikolaos Panigirtzoglou wrote: "Elevated equity positioning and leverage have reappeared, and although the degree is less than in June and July of this year, it still poses a certain challenge to the stock market in the fourth quarter." Seven Indicators: Through Which Openings Has Leverage Returned? The report breaks the return of "excess" into seven chains of evidence. First, leverage built through US stock index futures has rebounded and is close to this year's high. The bank's positioning indicator is based on US Commodity Futures Trading Commission (CFTC) data, tracking asset managers' and leveraged funds' positions in the S&P 500, Dow Jones, Nasdaq and their mini contracts, calculated as a proportion of open interest. Second, a broader composite indicator of equity positioning peaked in September, with previous highs in January 2026 and August 2025. Third, short interest in SPY, the world's largest equity ETF, which tracks the S&P 500, began to bottom out in early September after hitting a record low. Fourth, previously elevated short interest in semiconductor ETFs (SMH and memory stock ETF DRAM) has normalized, indicating that "the previous short covering has basically ended." Fifth, momentum signals show that trend-following traders (CTAs) have begun to rebuild long positions in the Nasdaq, South Korea's KOSPI, Taiwan and the Nikkei index, "but still far below previous extremes"; the report also noted that the relative trade popular from April to June"sell Chinese internet companies (HSCEI), buy Korean and Taiwanese stocks"reappeared in August and September. Sixth, the ratio of leveraged equity ETF assets to the market capitalization of underlying stocks has rebounded in recent weeks and is currently at about 70% of the range between the April low and the June high; the rebound in memory-stock-related leveraged products is not obvious and remains at about 50% of that range. The report warned that if the overall size of leveraged ETFs continues to expand, its problem as a trigger for deleveraging and a source of excessive volatility may once again become a risk point for the stock market. Seventh, and the one the report considers most worthy of vigilance: margin account leverage. The Hardest Data Point: $1.45 Trillion and 4.5% of GDP JPMorgan uses the net debit balance in NYSE margin accounts as a proxy for US retail investor leverage. The report pointed out that this indicator was at a "very high level" in August, and the deleveraging in June and July barely changed it, so it "remains a major vulnerability for the stock market." The report explained the mechanism: hedge funds can more easily and cheaply add leverage through options and futures, while individual investors are more constrained by the Federal Reserve's Regulation Twhich stipulates that when buying securities on margin, at most 50% of the purchase price may be borrowed; the net debit balance equals margin debit balances minus the sum of credit balances in cash accounts and margin accounts. Market-side data corroborates this judgment. Monthly statistics from the Financial Industry Regulatory Authority (FINRA) show that in August, US margin debt increased by about $36.6 billion (up 2.6%) to $1.4538 trillion, the second-highest on record, behind only the June peak of $1.502 trillion; year to date, it has increased by about $228 billion (up 19%), with a year-over-year increase of about 37%. Over a longer time frame, investor borrowing has increased by $847 billion since the end of 2022 (up 140%), while the S&P 500 rose 98% over the same periodleverage has expanded noticeably faster than market capitalization itself. Relative to the size of the economy, margin debt is now equivalent to about 4.5% of US GDP, higher than the roughly 3.6% peak in the 2021 cycle and 2.8% during the 2000 internet bubble. JPMorgan Chairman and CEO Jamie Dimon has also publicly said that "market leverage is quite high." A distinction in definitions is needed here: JPMorgan uses NYSE net debit balances, while FINRA publishes margin financing balances in customer margin accounts. The two have different statistical scopes and cannot be directly equated or added together. Why JPMorgan Is Still Bullish on Tech: Three Fundamental Pillars Despite flagging headwinds from positioning and leverage, this weekly report did not turn bearish. The report emphasized that the bank's equity research team still believes the tech/AI sector has fundamental support, and "even if another equity VaR shock similar to June and July occurs, it will not derail the tech bull market." The support comes from three sources: First, memory prices remain in an upward trend, providing fundamental support for memory manufacturerswhich have been the high-beta names in the tech/AI sector. This direction is consistent with this publication's previous memory tracking: Goldman Sachs' October 1 report expects DRAM and NAND contract prices to continue rising in the fourth quarter and views enterprise SSDs as the only accelerating category. Second, hyperscalers' capital expenditure expectations have been significantly revised upward. Based on aggregated bottom-up analyst consensus, combined capital expenditure by the five major companies (Google, Amazon, Meta, Microsoft, Oracle) is expected to be $804.9 billion in 2026 and $1.0918 trillion in 2027, higher than the $758 billion and $925 billion as of July 1. This consensus level is basically in line with market expectations cited in Goldman Sachs' September 24 report (about $800 billion in 2026 and $1.1 trillion in 2027); Goldman's own forecast is more aggressive, at $1.2 trillion in 2027 and $1.4 trillion in 2028, and it estimates that for these investments to break even on average annual capital expenditure in 2026 to 2027, about $300 billion in annual AI revenue would need to be generated in the coming years. Third, AI compute prices remain firm. JPMorgan uses the Compute Desk's Hopper US Index as a proxythe index aggregates on-demand and reserved prices for renting Nvidia H100/H200 from US neocloud providers, in USD/GPU/hourand pointed out that after continued pressure at the end of 2025, compute prices have shown signs of improvement in recent months; the report argues that the higher compute prices are, the stronger hyperscalers' ability to maintain or improve margins, and the index's trend also calls into question some investors' assumptions that "overstate equipment obsolescence and depreciation." Independent industry data points in a similar direction: compute pricing agency Ornn's H200 settlement price index was reported at $5.96/GPU/hour on October 1, up 32.2% over 30 days, with a three-month range of $4.01 to $5.96. The Other Side: Deteriorating Breadth, "If It's Not AI, It's Failing" Beyond warnings about positioning and leverage, September also left several unhealthy marks in the US stock market itself. For the entire month of September, the S&P 500 edged down 0.4%, 1.9% below its August record high; the Nasdaq Composite rose 1.8% and hit a record high on September 22; but the Dow Jones Industrial Average fell 4.3%, and the small-cap-heavy Russell 2000 dropped 5.4%. Interactive Brokers chief strategist Steve Sosnick summarized this as a market where "if it's not AI, it's failing." A more specific breadth signal appeared on September 21: the S&P 500 rose 1.49% that day to 7,764.70, only about 0.4% below its record close, but the number of constituents hitting 52-week lows that day (30) exceeded the number hitting 52-week highs (7), the first time since December 1999 that this combination of "index at highs, net new highs negative" had appeared; according to Dow Jones Market Data, 59.2% of S&P 500 constituents were already down at least 20% from their own historical highs. The same set of facts has also produced two voices within JPMorgan. Just one day before this weekly report warned that "positioning and leverage excess has reappeared," the bank's market intelligence team led by Andrew Tyler turned tactically bullish in a September 29 client report, citing stronger-than-expected macro data, a stabilizing bond market, lower oil prices, and expectations that tech and semiconductors would continue to outperform. The other end of the disagreement comes from the scale of AI investment itself. Morgan Stanley strategist Michael Wilson said that another rise in oil prices and refined product prices is the main near-term risk preventing the market from reaching his year-end target; UBS chief economist Arend Kapteyn estimates that AI-related investment and the wealth effect from rising AI stocks have accounted for more than 80% of US economic growth, while capital expenditure in non-AI sectors is "almost zero"this is both a support for growth and a source of concentration risk. A Two-Way Judgment For the fourth quarter, this report actually offers a two-way judgment: on the one hand, the "excess" in positioning and leverage has returned through multiple openings, and margin account leverage is the most stubborn part and the one closest to retail investors; on the other hand, JPMorgan believes that the three fundamental pillars of tech/AImemory prices, trillion-dollar-scale capital expenditure and firm compute pricesremain intact, so the more likely scenario is amplified volatility, not the end of the bull market. The report does not give index-level forecasts, but it narrows the observation window sharply: what really needs to be watched is whether any one of these three pillars begins to loosen.