Equities are disconnected both from macro and policy realities.

That’s according to JPMorgan analysts led by Marko Kolanovic, who’s still Underweight stocks. Equity vol, he wrote Monday, is discounting just 3% odds of a downturn, against the bank’s one-year recession probability model, which puts the likelihood at 70%.

“Stocks have overshot the soft data and completely disregarded other leading indicators,” Kolanovic said. The figure below makes the point.

Monday’s warning was the latest in a long series of concerned notes from Kolanovic, who turned leery late last summer and has generally maintained a cautious bent since.

He’s hardly alone. Other popular top-down strategists including BofA’s Michael Hartnett and Morgan Stanley’s Mike Wilson are likewise skeptical of the notion that the worst is over for equities after 2022’s “crashless” bear market. Wilson reiterated familiar talking points on Monday, and Hartnett late last week.

“Overall, we continue to see long-term leading economic signals pointing to bad times while the market makes rosier assumptions,” Kolanovic went on, pointing to the latest vintage of the Fed’s senior loan officer survey, released to much fanfare last week.

The results of the survey showed banks continued to tighten standards over the last three months, while demand for credit collapsed. As discussed at some length in “The Lending Standards Canary,” the read-through for corporate profits and credit spreads is arguably foreboding.

“We are inclined to view signals like yield curve inversion and higher SLOOS lending standards as legitimate and the bullish market signals as undependable,” Marko said Monday, on the way to flagging poor breadth as a material risk. The chart below is updated.

Narrow market warnings are now a mainstay — a weekly clarion call of sorts. “Equal-weighted versus cap-weighted S&P 500 relative performance fell further last week and is quickly approaching the December 2021 lows, which preceded this bear market,” Wilson said, in his weekly.

JPMorgan drove home the point, calling the divergence between cap-weighted and equal-weighted performance an “extreme distortion,” on the way to reminding investors that in a rally, you want more participation, not less, and you also need confirmation from a variety of cyclical signals. Currently, the bank despaired, “we have the exact opposite.”

Kolanovic and co. were pretty emphatic. “A rally built off a handful of stocks can easily reverse,” they wrote, adding that “while there may be substance in the ChatGPT euphoria, the question is whether it is enough to be the basis of a rally for the broader market.”