As noted, Morgan Stanley’s Mike Wilson is still bearish. So is JPMorgan’s Marko Kolanovic.

“The equity rally over the past two months implies macroeconomic scenarios that are even more positive than a soft landing,” analysts led by Marko wrote on Monday afternoon, ahead of a monumental week for macro data, policy decisions and earnings.

Although that contention is difficult to prove, it’s also hard to disprove. Certainly, you can argue that stocks and equity positioning have overshot key cyclical indicators — by a country mile in some cases.

For example, the disparity between discretionary re-risking and ISM manufacturing (which tend to track each other fairly closely) is glaring.

The figure above, from Deutsche Bank, suggests that this particular disconnect has virtually no precedent. You can make a similar chart using YoY S&P returns with the YoY change in ISM.

That said, if you plot the same measure of discretionary positioning (or the S&P for that matter) with data surprises or earnings revisions, the situation doesn’t look quite as anomalous. Basically, you can make either case, bullish or bearish.

Kolanovic made the bear case on Monday. Again. And more forcefully this time. “We maintain that this market action is largely a result of mechanical re-risking, due to the decline in volatility and emergence of the AI-themed mega-cap rally.”

To be sure, systematics (which add or reduce exposure based on momentum and volatility) played a starring role in pushing stocks higher, and there’s a very real sense in which all investors, algos and humans alike, operate on some version of the same risk management parameters. As Nomura’s Charlie McElligott put it in 2020, “Even traders who view themselves as ‘fundamental’ or discretionary are in the same boat as ‘momentum’ players as we all operate under frameworks which allow for greater leverage deployment into trending markets.”

So, yes, the steady decline in volatility has a lot of explanatory power, and it’s self-fulfilling. And it goes without saying that the A.I. narrative turbocharged the situation starting in late May.

Kolanovic cited 60-year extremes in market concentration which he said “could be indicative of a bubble.” JPMorgan (which has leveraged A.I. in its research for years), isn’t bearish on the technology. Far from it. Rather, the bank’s strategists are just concerned about the sustainability of “the current hype,” which Kolanovic unapologetically said was “triggered by the popularization of chatbots that often fail in basic questions and occasionally fabricate wrong answers.”

Bottom line: JPMorgan is still convinced that the full impact of the most aggressive rate hikes many investors have ever seen has yet to be felt, and that when it is, it’ll have implications for real estate and consumer credit, among other things. Marko also cited the “steady erosion of consumer savings and post-COVID, pent-up demand,” as well as a “deeply troubling geopolitical context.”

Together, he warned, all of that could “result in market declines and the re-emergence of volatility.” Kolanovic conceded that JPMorgan “cannot time this inflection,” but reiterated that as it stands, the bank sees “no data points that would prompt us to change our methodology or conclusions.”