I haven’t counted myself among equity bears in quite a while, and I’m far from convinced that now’s a good time to board the disaster bandwagon.

That said, I’ll confess: The summit push which found the S&P reclaiming record highs despite a poor start to the year for bonds feels suspiciously like a trap on some days.

It’s not so much the bond weakness that’s irksome. Rather, it’s nascent evidence of capitulation, both quantitative and qualitative, that feels somewhat ominous.

Readers likely saw a headline Tuesday describing an ostensible “in-house” disagreement at JPMorgan, where the bank’s trading desk issued a “mea culpa” (their word choice) for an “overly conservative” approach to equities in January.

Naturally, the financial media (which depends on name-dropping popular strategists to pay the bills on slow news days) juxtaposed that with Marko Kolanovic’s still cautious stance on risk assets, as updated and discussed here earlier this week.

It was an apples-to-oranges comparison, as trading-to-research comparisons usually are. Admittedly, though, the tactical call from the Equities desk was diametrically opposed to Kolanovic’s assessment in at least two key ways beyond the bullish versus bearish tension.

The trading note flagged mega-cap tech’s “de-coupling from bond yields,” and described an upbeat “macro story,” which “continues to reveal an economy [running] at an above-trend pace with no material signs of falling below trend in the near-term.” Kolanovic, by contrast, has warned repeatedly on the risks associated with stretched valuations for mega-cap tech and generally describes economic resilience as a potential headwind for equities, to the extent it prevents the Fed from pivoting as quickly as they otherwise might given favorable three- and six-month annualized inflation trends.

This week, JPMorgan’s asset allocation team described the January jobs report as “a challenge for the Goldilocks / soft landing view.” “Equities have been unfazed by the jobs numbers,” they wrote. “[But] with wage growth at 4.5% YoY and a big upside surprise in average hourly earnings at 0.6%, it is worth considering upside risk for rates and what it means for markets that have gone all-in on the soft landing thesis.”

Apropos, Treasury yields posted their largest two-session increase (i.e., suffered their biggest two-day selloff) since June of 2022 across Friday and Monday amid robust data and Fedspeak which suggested the Committee’s open to the notion that the neutral rate is higher.

As the updated figure (above) shows, stocks have now decoupled in earnest from 2024 rate-cut pricing. That’s not a bad thing in and of itself. But it should perhaps give investors pause. Instead, some seem to view it as a green light.

Nomura’s Charlie McElligott described the zeitgeist in a Tuesday note. “The current US equities dynamic looks very ‘heads I win, tails you lose,'” he remarked. “Either we maintain this current Goldilocks [regime] with growth strong against continued disinflation allowing corporate earnings to stay robust, or we slow meaningfully while [still] avoiding [a] hard landing and get back to that 175bps of rate cuts scenario, where the resumption of multiple expansion supports the high-valuation tech and growth heavyweights [which] mak[e] up almost a third of SPX.”

I suppose this goes without saying, but: Charlie wasn’t suggesting he endorses a “heads I win, tails you lose” interpretation. Such conjunctures are everywhere and always rife with risk.

Notably (and you’ve heard this a thousand times here over the past two or three months), key investor cohorts are still underexposed to a rally that won’t die.

“After in-persons with about 15 clients over the past week and half, only three volunteered that they have ‘above-normal’ risk on at the top-of-house level,” McElligott went on to say. “Accordingly, large investors including real money, continue to indicate they are being forced to ‘grab into’ beta through futures and/or index options upside.”

The figures above speak for themselves. Quickly: The skew percentiles on the right-hand side once again underscore the notion that demand for downside protection is negligible against a lot of angst about missing an extension of the melt-up (hence 100%ile call skew).

According to Bloomberg calculations, the average gain (on up days) for the S&P in 2024 is 0.66%. The average loss on down days is around 0.45%. The ratio between the two is now the most favorable for bulls at this point in a calendar year in almost three decades, Elena Popina observed.

One top-five Wall Street bank described US equities futures positioning as extended (long) and potentially perilous in a February 5 note. Shorts in tech shares are now cleared out entirely, leaving a 97%ile one-sided long position, which the bank said could pose “a risk that could amplify a turn in the market.” Still, underwater S&P shorts might be forced to cover, which could “rapidly make positioning turn [even] more net bullish.”

I realize (better than most) that this is all a bit mind-numbing. The overarching point, coming full circle, is that during some sessions, it feels like US equities are vulnerable to a Looney Tunes gravity moment in the event something comes along and compels stocks to look down.