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Michael,
As I'm sure other's will tell you, it is most likely the PNP switch on the transmission. This is a common failure, but isn't a major problem and is relatively easy to replace. I replaced this switch on the wife's 1995 850 Turbo a year or two ago. Her car had the same symptom, no upshift in the morning (as you have), but also had no reverse lamps, and occasionally, no start (due to the switch not showing that the shifter is in park). I would suggest this: move the shifter into the "3" position and see if it upshifts. Usually it will, and you can then shift it back into drive.
Let me know what you find...
Joe S. - Volvo Master Technician
1988 760 Turbo w/270k miles, 1981 242 Turbo w/243k miles
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